WAEC Economics 2012 Theory — Question 2

Model answer

(a) A decrease in the price of substitute P will lead to an increase in the demand for P and a decrease in the demand for commodity x, as consumers switch to the now-cheaper substitute. (b) An increase in consumers' disposable income will generally lead to an increase in demand for commodity x (assuming x is a normal good), since consumers have more money available to spend. (c) A decrease in the supply of substitute P will lead to an increase in the price of P, which in turn will lead to an increase in the demand for commodity x, as consumers switch away from the now-scarcer/costlier substitute. (d) An increase in income tax will reduce consumers' disposable income, which will therefore lead to a decrease in demand for commodity x (assuming it is a normal good).