In a regional market, Cassava flour (Good X) and Yam flour (Good Y) are substitute goods i… — JAMB UTME

In a regional market, Cassava flour (Good $X$ ) and Yam flour (Good $Y$ ) are substitute goods in competitive demand, while Yam flour (Good $Y$ ) and Egusi seeds (Good $Z$ ) are in joint demand. A sudden government tax increases the market price of Cassava flour (Good $X$ ), while consumer average disposable income simultaneously falls across the region (assuming Yam flour is a normal good). Which of the following correctly describes the underlying shift mechanisms and structural impacts on the demand curves for Yam flour (Good $Y$ ) and Egusi seeds (Good $Z$ )?

The increase in the price of Cassava flour exerts a rightward shift on the demand curve for Yam flour due to competitive demand, while the drop in income exerts a leftward shift on it; any resulting net shift in Yam flour demand will shift the demand curve for Egusi seeds in the same direction due to complementary demand.Answer
B
The increase in the price of Cassava flour causes a movement upward along the demand curve for Yam flour, while the drop in income causes a leftward shift of the demand curve for Egusi seeds.
C
The increase in the price of Cassava flour causes a rightward shift in the demand curve for Yam flour, which in turn causes an opposite (leftward) shift in the demand curve for Egusi seeds because they are in joint demand.
D
The drop in income causes a movement along the demand curve for Yam flour, while the price change of Cassava flour causes a movement along the demand curve for Egusi seeds.

Answer

The correct answer explains that the increase in the price of Cassava flour exerts a rightward shift on the demand curve for Yam flour due to competitive demand, while the drop in income exerts a leftward shift; any resulting net shift in Yam flour demand will shift the demand curve for Egusi seeds in the same direction due to complementary demand.

A change in the price of a substitute good (Cassava flour) or a change in consumer income represents a non-price determinant for Yam flour, causing a shift of the demand curve for Yam flour rather than a movement along it. Since Yam flour and Egusi seeds are in joint (complementary) demand, their demand curves shift in the same direction.

Step-by-Step Solution

Analyze the impact of an increase in the price of Cassava flour (Good

X

) on Yam flour (Good

Y

Since Cassava flour and Yam flour are substitutes (competitive demand), an increase in the price of Cassava flour leads consumers to substitute away from Cassava flour toward Yam flour. Because this is a change in the price of a related good (a non-price determinant for Yam flour), it causes a rightward shift in the demand curve for Yam flour (an increase in demand).

Changes in the price of related goods shift the demand curve of the commodity in question rather than causing movement along it.

Analyze the impact of a decrease in consumer income on Yam flour (Good

Y

Because Yam flour is a normal good, a decrease in disposable income reduces purchasing power, causing a leftward shift in the demand curve for Yam flour (a decrease in demand).

Income is a non-price determinant; a reduction in income decreases demand for normal goods.

Analyze the relationship between Yam flour (Good

Y

) and Egusi seeds (Good

Z

Yam flour and Egusi seeds are in joint (complementary) demand. Therefore, any net change in the demand for Yam flour causes the demand for Egusi seeds to shift in the exact same direction.

Complementary goods are consumed together, so an increase/decrease in demand for one good directly drives an increase/decrease in demand for the other.

Key Concept

Distinction between shifts in demand and movements along a demand curve across interrelated goods

Estimated Time:2m 30s

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