3.1.2.6 The interrelationship between markets Flashcards
What is the interrelationship between markets?
Changes in one market (e.g., demand, supply, or price) can affect other related markets due to the connections between goods and services.
What is derived demand?
Derived demand occurs when the demand for one good is linked to the demand for a related good.
For example, the demand for bricks is derived from the demand for new houses.
Provide an example of derived demand.
The demand for labor in car manufacturing is derived from the demand for cars.
If car demand increases, the demand for car factory workers also increases.
What is composite demand?
Composite demand occurs when a good has more than one use.
For example, milk can be used to produce cheese, butter, or yogurt.
Provide an example of composite demand.
If the demand for cheese increases, more milk is used for cheese production, leaving less milk available for butter production.
What is joint demand?
Joint demand occurs when goods are purchased together, such as digital cameras and memory cards.
An increase in demand for one good (e.g., cameras) leads to an increase in demand for the other (e.g., memory cards).
Provide an example of joint demand.
Printers and ink cartridges are jointly demanded.
If the demand for printers increases, the demand for ink cartridges also increases.
What happens when there is demand for substitute goods?
An increase in demand for one substitute good (e.g., Samsung TVs) reduces the demand and price for the other substitute good (e.g., Panasonic TVs).
What is joint supply?
Joint supply occurs when increasing the supply of one good affects the supply of another good.
For example, producing more lamb increases the supply of wool.
Provide an example of joint supply.
Producing more beef increases the supply of leather, as both come from cattle.
How do changes in one market affect other markets?
Changes in one market (e.g., demand for cars) can affect related markets (e.g., demand for car labor or steel) due to derived demand, joint demand, or joint supply.
What is the impact of increased demand for a good with composite demand?
Increased demand for one use of a good (e.g., milk for cheese) reduces the supply available for other uses (e.g., milk for butter), affecting prices and quantities in related markets.
How does joint demand influence related markets?
Joint demand links markets for complementary goods (e.g., cameras and memory cards).
An increase in demand for one good increases demand for the other, affecting prices and quantities in both markets.
How does joint supply influence related markets?
Joint supply links markets for goods produced together (e.g., lamb and wool).
Increasing the supply of one good (e.g., lamb) increases the supply of the other (e.g., wool), affecting prices and quantities in both markets.
What is the relationship between substitute goods?
Substitute goods compete with each other.
An increase in demand for one substitute (e.g., Samsung TVs) reduces demand and price for the other (e.g., Panasonic TVs).
How can changes in demand for a good affect its substitutes?
If demand for one substitute increases, consumers may switch away from the other substitute, reducing its demand and price.
Why is understanding interrelationships between markets important?
Understanding interrelationships helps analyze how changes in one market (e.g., demand for cars) can ripple through related markets (e.g., labor, steel, oil), affecting prices, quantities, and economic decisions.
What is an example of how derived demand affects labor markets?
If the demand for houses increases, the demand for construction workers (derived demand) also increases, affecting wages and employment in the construction industry.
