3.6 The Interrelationship Between Market Flashcards
What can the price mechanism do to demand or supply curves?
-shift them and cause disequilibrium and trigger and adjustment process to create a new equilibrium
What is joint supply?
When one good is produced another is also produced from the same raw materials(perhaps as a by-product)
Give an example of joint supply?
-demand for beef increases(due to increased real income)
-more slaughter of cows leads to the production of more cow hides
Leather is a by-product of beef, what happens to leather as more beef is produced?
More leather is produced and the supply curve of the leather shifts to the right
An increase of a good with joint demand (complementary good) has the opposite affect as a …
Substitute good
What is composite demand?
Demand for a good which has more than one use
-increase in demand for one use reduces the demand for the other use
E.g oil for petrol and plastics
What is derived demand?
Demand for a factor of production as a consequence of a demand for something els
(E.g increased demand of wood due to increased demand of fencing)
If demand for cars falls the demand for engines and gear boxes also falls
What are the two closely related problems that agriculture markets have experienced?
-prices fluctuate considerably from year to year
-long-run trend for agricultural prices to fall in comparison to manufactured goods(until recently)
What are agricultural markets prone to?
Market disequilibrium and random shifts of supply curve due to the climate
How can the long run downward trend be explained?
Shifts of the demand and supply curve over extended periods of time
-increases demand due to population
-excess supply due to improved technology
What is price volatility caused by in the agricultural market?
-fluctuations in the harvest
-wether conditions and other factors outside the farmers control shift the position of the supply curve from year to year
diagram for the interrelationship of two goods in joint supply
diagram for the long-run fall in prices of agricultural products
