(a) Explain with examples the terms competitive demand and complementary demand. (b) With the aid...
(a) Explain with examples the terms competitive demand and complementary demand.
(b) With the aid of diagrams, analyse the effect of a decrease in the import duty on cars on the price and consumption of petrol.
Explanation
(a) Competitive demand refers to commodities that serve the same purpose E g. Coca cola and Pepsi Cola, Pepsodent and Colgate.
Complementary demand refers to commodities which are used together. E.g. Car and petrol, tooth paste and tooth brush.
(b)
From Fig (i), a decrease in the import duties on cars results in a reduction in the price of cars from Po to P1
This leads to an increase in quantity demanded of cars from Qo to Q1.
An increase in the quantity demanded for
cars brings about an increase in consumption of petrol.
This shifts the demand curve from Do to D1. The price of petrol increases from Po to P1 as shown In Fig. (ii).