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Difficulty: MediumDeterminants and Changes in Demand

Following a reduction in import duties, the market price of imported wheat flour falls sharply, leading to a drop in the retail price of wheat bread. Assuming cassava bread is a close substitute for wheat bread among Nigerian households, which of the following describes the immediate geometric effect on the market demand curve for cassava bread?

  1. A leftward shift of the demand curve for cassava breadAnswer
  2. B
    An upward movement along the existing demand curve for cassava bread
  3. C
    A rightward shift of the demand curve for cassava bread
  4. D
    A downward movement along the existing demand curve for cassava bread

Answer

A leftward shift of the demand curve for cassava bread.
Wheat bread and cassava bread serve as alternative choices to satisfy the same need, making them substitute (competitive) goods. When the price of wheat bread falls, consumers substitute away from cassava bread toward the now cheaper wheat bread. Because this change is driven by a factor other than cassava bread's own price (a non-price determinant), the entire demand curve for cassava bread shifts to the left.

Step-by-Step Solution

1
Identify the economic relationship between the two goods
Wheat bread and cassava bread are competitive goods (substitutes) since they satisfy the same basic consumer need.
Determining whether goods are substitutes or complements dictates the direction of the demand shift when the price of one good changes.
2
Analyze the impact of the price change of the substitute good
A decrease in the price of wheat bread makes it relatively cheaper, increasing the quantity demanded of wheat bread and reducing consumer demand for cassava bread.
According to the principles of competitive demand, a lower price for substitute good X decreases demand for substitute good Y.
3
Distinguish between a shift of the curve and a movement along the curve
Since the change is caused by the price of a related good (a non-price determinant for cassava bread), it causes an entire shift of the demand curve to the left, rather than a movement along the curve.
Only a change in the commodity's own price causes a movement along its demand curve (change in quantity demanded).

Key Concept

Effect of Substitute Goods' Prices on Demand Curve Shifts
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Topics

Determinants and Changes in Demand

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