Interrelationships between markets

Question 1

What are complements?

Answer 1

• Products that are bought alongside together.

(e.g: tennis balls and tennis rackets)

Question 1

What elasticity of demand do complements have?

Answer 1

• Complements have a negative cross elasticity of demand.

-As the price of Good Y increase, the demand for a Good X would decrease.

Question 2

What’s the relationship between two complementary goods?

Answer 2

• An increase in demand for one good will see an increase in demand for a complementary good and vice versa.

Question 3

What would the demand for substitute goods depend upon?

Answer 3

• The number and closeness of available substitutes.

Question 4

What is the elasticity of demand for substitutes?

Answer 4

• Positive cross elasticity of demand.
• As the price of Good Y increases (positive) the demand for Good X will increase (positive).

Question 5

What is a composite demand?

Answer 5

• An increase in demand for one good or service will restrict its availability for another use.

-E.g: Steel for cars and construction.

-Therefore, there are competing uses for the same product.

Question 6

What would an increase in composite demand for one good lead to?

Answer 6

• It will see a decrease in the availability of resources for alternative uses and therefore a fall in the supply of another good.

Question 7

What is the derived demand for a product?

Answer 7

• It occurs as a result of demand for another good or service.
• All finished products create derived demand.

Question 8

What is the joint supply?

Answer 8

• It occurs when the production of a product creates a by-product that can also be supplied.
• An increase in supply of one product will lead to an increase in the supply of another product.
• E.g: the increased production of sheep for meat will increase the supply of wool.
  -> The supply curve will shift to the left for both products which would lead to a decrease in price of both products.