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Question

Difficulty: MediumTypes of Demand

A raw agricultural commodity such as sugarcane is required for several alternative uses, including the production of refined table sugar, bio-ethanol fuel, and livestock feed processing. Which type of demand best describes the market demand for sugarcane?

  1. Composite demandAnswer
  2. B
    Joint demand
  3. C
    Derived demand
  4. D
    Competitive demand

Answer

Composite demand
Composite demand arises when a single good or service has multiple alternative uses. Raw sugarcane is used to manufacture refined sugar, produce bio-ethanol fuel, and process livestock feed; therefore, its total market demand is composite.

Step-by-Step Solution

1
Analyze the nature of the demand scenario described in the question stem
Sugarcane serves multiple independent and alternative applications (sugar, ethanol, animal feed).
Identifying the relationship between the product and its various end uses determines the classification of demand.
2
Apply economic definitions of interrelated types of demand
When a total supply of a commodity is split among competing alternative uses, it exemplifies composite demand.
An increase in demand for sugarcane in ethanol production will reduce the supply available for sugar production, which is the defining characteristic of composite demand.

Key Concept

Composite Demand
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Topics

Types of Demand

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