Evaluate the market developments below and match each change in economic conditions (Left) to its corresponding geometric effect on the demand curve for the affected commodity (Right).
- A major price hike in premium motor spirit (petrol) affecting the market for compressed natural gas (CNG) commercial buses.Outward (rightward) shift of the demand curve driven by a price increase of a substitute commodity in competitive demand.
- A direct reduction in the market retail price of local unpolished rice on the consumer purchases of local unpolished rice itself.Downward movement along the stationary demand curve, representing an increase in quantity demanded.
- A severe economic downturn causing a decline in real household disposable income on the market for low-quality cassava flour (an inferior good).Outward (rightward) shift of the demand curve because demand increases as real household income falls.
- An intensive public health advisory detailing the chronic health risks of consuming refined sugar on the market for industrial refined sugar.Inward (leftward) shift of the demand curve resulting from an adverse turn in consumer tastes and preferences.
Answer
The market developments match their demand curve effects as follows: Petrol price increase shifts CNG bus demand curve outward (competitive substitute); local rice price reduction causes downward movement along its demand curve (increase in quantity demanded); falling household income shifts cassava flour demand curve outward (inferior good response); health warnings shift refined sugar demand curve inward (adverse taste change).
Each market event is correctly paired by distinguishing between own-price effects (movements along the demand curve) and non-price determinants (shifts of the demand curve). The price hike of petrol increases demand for CNG buses as a substitute (rightward shift). The price drop of local rice increases quantity demanded along its current curve (downward movement). Falling incomes boost demand for cassava flour due to its inferior good property (rightward shift). Health advisories weaken preferences for sugar, shifting its demand curve leftward.
Step-by-Step Solution
Key Concept
Distinguishing between changes in quantity demanded (own-price movements along the curve) and changes in demand (non-price factor shifts involving income, tastes, and substitute prices).