Question 4
(a) With specific examples, distinguish between substitute goods and complementary goods.
(b) With the aid of diagrams, explain how Milo would be affected by each of the following factors:
- an increase in the price of Ovaltine.
- an increase in the price of cocoa beans.
This question attracted a few number of candidates, most of them scored average marks. The question required candidates to distinguish between substitute goods and complementary goods with relevant examples and explain with the aid of diagrams how Milo would be affected an increase in the price of Ovaltine and cocoa beans. Most candidates were able to distinguish between substitute goods and complementary goods but were unable to illustrate with the aid of diagrams, the effect of an increase in the price of Ovaltine and cocoa beans on Milo. Candidates were expected to answer thus:
- Substitute goods are goods which can be used interchangeably because they satisfy the same want. Such commodities have competitive demand e.g. tea and coffee.
Complementary goods , on the other hand are goods which are used jointly to satisfy a want. Such commodities have joint demand e.g. torchlight and battery.
(b)(i) An increase in the price of Ovaltine will make consumers switchover to Milo because Ovaltine and Milo are substitutes. The demand for Milo will therefore increase and with supply remaining unchanged, the price of Milo will rise.
