(a) Distinguish between competitive demand and joint demand.
(b) Using diagrams, explain how the following factors will affect the equilibrium price and quantity of commodity R in the market
i. an increase in the price of the Complement of commodity R:
ii. an increase in the price of a substitute of commodity R
iii. imposition of an indirect tax on commodity
(a) Competitive demand refers to the demand for goods that can be used as alternatives to each other, such as coffee and tea. An increase in the price of one good (e.g., coffee) can lead to an increase in the demand for the other good (e.g., tea), as consumers switch to the cheaper alternative. Joint demand, on the other hand, refers to the demand for goods that are typically consumed together, such as cars and gasoline. An increase in the demand for one good (e.g., cars) will lead to an increase in the demand for the other good (e.g., gasoline).
(b)
i. An increase in the price of a complement of commodity R, such as a rise in the price of petrol, would lead to a decrease in the demand for commodity R. This would result in a leftward shift in the demand curve for commodity R, leading to a new equilibrium point with a lower price and quantity.
ii. An increase in the price of a substitute of commodity R, such as a rise in the price of commodity S, would lead to an increase in the demand for commodity R. This would result in a rightward shift in the demand curve for commodity R, leading to a new equilibrium point with a higher price and quantity.
iii. The imposition of an indirect tax on commodity R would increase the cost of production and decrease the supply of commodity R, resulting in a leftward shift in the supply curve. This would lead to a new equilibrium point with a higher price and a lower quantity. The burden of the tax may also be shared by consumers in the form of a higher price.