2.8. INTERCONNECTEDNESS OF MARKETS
This video is relevant for this section despite it saying that it is for AQA.
Markets are extremely interrelated with each other. We saw in the previous section that there are substitutes and complimentary goods, but there are many more relationships between goods and some of the key ones are:
- Composite demand. This is where a good is in demand because it has a variety of different uses. An example is oil as it is used for transportation and the production of plastic. Another example is wheat. When there is an increase in demand for wheat from one use, lets say biofuels; this increases the price in the market for wheat. Other uses of wheat such as bread making and animal feed then have a choice to pass this increase in price onto their consumers or choose an alternative resource (the rationing effect).
- Derived demand. This is when there is demand for a good or factor of production as a result of the demand for the final good. For example, if I demand a table, then labour will also be demanded, as there has to be someone who makes the table.
- Joint supply. This is where the production of one good leads to another good being produced as a byproduct. Raising cows for their meat can create a variety of byproducts, such as milk, leather, manure etc… these byproducts can then be sold on.
- Goods that are in joint demand. Joint demand is essentially complement goods. An example is printer and printer ink. Two goods that are in joint demand will have a high negative cross elasticity of demand.
- Substitutes goods (explained in previous section).
- Complementary goods (explained in the previous section)