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Difficulty: MediumDeterminants and Changes in Demand

Match each economic factor or market event on the left with its corresponding impact on the demand curve for the target commodity on the right.

  • A sharp rise in the retail price of motor vehicles on the demand for motor vehicle insurance.An inward (leftward) shift of the demand curve caused by complementary (joint) demand.
  • A decline in the market price of fresh fish on the demand for beef.An inward (leftward) shift of the demand curve caused by competitive (substitute) demand.
  • An increase in household disposable income on the demand for a low-grade food staple (an inferior good).An inward (leftward) shift of the demand curve resulting from an inverse income-demand relationship.
  • Widespread consumer expectations of an impending price surge in cooking gas.An outward (rightward) shift of the current demand curve driven by speculative expectations.

Answer

1. Price rise of motor vehicles → Inward shift of insurance demand due to joint/complementary demand.
2. Price drop of fresh fish → Inward shift of beef demand due to competitive/substitute demand.
3. Increase in disposable income → Inward shift of inferior good demand due to inverse income relationship.
4. Expectation of price surge in cooking gas → Outward shift of current cooking gas demand due to speculative buying.
Each factor represents a specific non-price determinant of demand. Price changes of complementary goods inversely affect demand for the primary good. Price changes of substitute goods directly affect demand for the related good. Income changes reduce demand for inferior goods, and expectations of future price increases raise current demand.

Step-by-Step Solution

1
Analyze the relationship between motor vehicles and motor insurance.
They are complementary goods; higher vehicle prices reduce vehicle purchases and consequently lower the demand for motor insurance, shifting the curve leftward.
Complementary goods exhibit joint demand.
2
Analyze the relationship between fresh fish and beef.
They are substitute goods in competitive demand; a price drop in fish makes fish relatively cheaper, reducing beef demand and shifting its curve leftward.
Substitutes satisfy the same consumer need.
3
Evaluate the impact of higher consumer income on inferior goods.
For inferior goods, an increase in income leads to a decrease in demand, shifting the demand curve to the left.
Inferior goods have negative income elasticity of demand.
4
Examine the effect of expected future price changes on current demand.
Expectations of a future price increase spur panic buying now, increasing current demand and shifting the demand curve to the right.
Consumer expectations alter current purchasing timing.

Key Concept

Determinants and Changes in Demand
Estimated Time:1m 30s
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Topics

Determinants and Changes in Demand

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