Examkin

Question

Difficulty: HardTypes of Demand

An increase in the price of petrol causes a decline in the market demand for motor cars, whereas an expansion in motor car manufacturing leads to a higher demand for steel. What types of demand are illustrated by petrol for cars, and steel for car production, respectively?

  1. Joint demand and derived demandAnswer
  2. B
    Competitive demand and joint demand
  3. C
    Derived demand and composite demand
  4. D
    Composite demand and competitive demand

Answer

The demand relationship between petrol and cars is joint (complementary) demand, while the demand for steel used in vehicle manufacturing is derived demand.
Petrol and motor cars are complementary goods consumed together to provide transportation, making their relationship an example of joint demand. Conversely, steel is an intermediate input whose demand depends directly on the production volume of finished motor cars, which represents derived demand.

Step-by-Step Solution

1
Analyze the relationship between petrol and motor cars.
An increase in the price of petrol reduces the demand for cars because both goods are consumed together to satisfy a single want.
Goods that are used concurrently to satisfy a single demand exhibit joint or complementary demand.
2
Analyze the relationship between motor car manufacturing and steel.
Steel is demanded not for its own direct utility, but because it is an essential factor input needed to manufacture motor cars.
Demand for a factor of production or raw material that arises from the demand for the final commodity it produces is classified as derived demand.
3
Combine both classifications in respective order.
The correct sequence is joint demand followed by derived demand.
Matching both parts of the scenario yields joint demand for petrol/cars and derived demand for steel/car manufacturing.

Key Concept

Types of Interrelated Demand (Joint and Derived Demand)
Rate this question

Topics

Types of Demand

More questions from this topic