Examkin

Question

Difficulty: MediumTypes of Demand

An increase in the market price of palm oil causes a corresponding rise in the demand for groundnut oil as households seek alternative cooking media. Which type of demand is demonstrated by groundnut oil in relation to palm oil?

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

Answer

Competitive demand, as palm oil and groundnut oil serve as substitutes satisfying the same household need.
Competitive demand occurs when two or more commodities serve as substitutes to satisfy a single want. Because palm oil and groundnut oil are substitutes, a price increase in palm oil shifts consumer demand toward groundnut oil.

Step-by-Step Solution

1
Identify the relationship between the two commodities
Palm oil and groundnut oil are alternative goods used for cooking, fulfilling the same basic purpose for consumers.
Determining whether two goods are substitutes or complements is necessary to classify the type of interrelated demand.
2
Analyze the impact of a price change in palm oil on the demand for groundnut oil
As palm oil becomes more expensive, consumers switch to groundnut oil, causing the demand for groundnut oil to increase.
A positive relationship between the price of one commodity and the demand for another defines competitive (substitute) demand.

Key Concept

Competitive Demand (Substitute Goods)
Estimated Time:1m 0s
Rate this question

Topics

Types of Demand

More questions from this topic