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Question

Difficulty: EasyTypes of Demand

When an increase in the price of tea leads directly to an increase in the demand for coffee as an alternative, which type of demand is demonstrated?

  1. Competitive demandAnswer
  2. B
    Joint demand
  3. C
    Derived demand
  4. D
    Composite demand

Answer

Competitive demand
Competitive demand (or demand for substitutes) occurs when two or more goods satisfy the same want. An increase in the price of tea makes it relatively more expensive, causing consumers to switch to coffee and increasing the demand for coffee.

Step-by-Step Solution

1
Examine the economic relationship between tea and coffee.
Tea and coffee satisfy similar consumer needs and act as substitute goods.
When tea becomes more expensive, consumers replace tea consumption with coffee.
2
Classify the demand type based on substitute relationship.
Demand for commodities that compete to satisfy the same want is classified as competitive demand.
Substitute goods compete for market share and consumer spending.

Key Concept

Competitive Demand
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Topics

Types of Demand

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