(a) What is a demand schedule?
(b)Explain each of the following terms:
→effective demand
→composite demand
→derived demand
(ci) Using appropriate diagrams, explain how a change in the price of a commodity would influence the demand of its:
substitute
(ii) Using appropriate diagrams, explain how a change in the price of a commodity would influence the demand of its:
complement
Explanation
(a) Demand schedule is a table that shows the relationship between price and quantity demanded of a consumer. When constructed into a diagram, it becomes a demand curve.
(b) →Effective demand refers to the desire, backed up by willingness and ability to buy at a given price.
→Demand is said to be composite when it can be put into several alternative uses. Hence, each use of the commodity is the rival of the other uses, For example, coal is demanded by railways, factories, households etc.
→It is said to be derived if the demand is for further production. Derived demand occurs as a result of other commodities. For example, demand for labour, demand for money etc.
(ci) In the case of substitute goods, an increase in the price of one good results in an increase in the demand of its substitute goods e.g tea and coffee are substitute goods. When the price of tea increases, then consumer starts consuming coffee in place of tea. As a result, the demand of coffee increases, and the demand curve of coffee shifts to the right as represented in the diagram below.
When the price decreases, the demand of its substitute goods also falls. As a result, demand of tea decreases, and demand curve of tea shifts to the left as represented in the diagram below.
(ii) Complementary goods are purchased jointly such as ink and pens.
An increase in the price of complementary goods:
If there is an increase in the price of a good, the demand for another good will decline. So the demand curve shifts parallel to the left i.e from D1D1 to D2D2.
A decrease in the price of the complementary good:
If there is a decrease in the price of a good, then the demand for another good will increase. So the demand curve shifts parallel to the right, i.e from D1D1 to D2D2.