Micro 6 - Interrelationship Between Markets

Question 1

Joint Demand

Answer 1

> Demand for gods which tend to be consumed together.

>Demand for complimentary goods.

Question 2

Competitive Demand

Answer 2

> Demand for goods which fulfill similar wants and needs, such that one can be consumed in the place of the other and provide similar utility.
Demand for substitute goods.

Question 3

Composite Demand

Answer 3

> Demand for a good which has multiple different uses, such that, as people demand the good more for once use, less is available for other uses.

Question 4

Derived Demand

Answer 4

> Demand for a good, which is used to meet another demand, so when demand for one good or service increases, derived demand will increase for the goods which are used to produce it.
Commodities are the most obvious example of goods that have a derived demand.

Question 5

Joint Supply

Answer 5

> Supply of multiple goods which tend to be produce through a single operation or process such that the goods are produced together.
This may be goods where one is a byproduct of the other.

Question 6

Cross Elasticity of Demand - definition

Answer 6

> XED.

>A measure of how responsive demand for one good is to changes in the price of another.

Question 7

Income Elasticity of Demand - definition

Answer 7

> YED.

>A measure of how responsive demand for one good is to changes in the real income of consumers.

Question 8

Cross Elasticity of Demand (XED)

Answer 8

> Can be positive (substitute goods) or negative (complementary).
All other factors remain equal, in particular income.

Question 9

XED formula

Answer 9

> % change in quantity demanded of good ‘X’/ % change in price of good ‘Y’.

Question 10

XED - relationship between products.

Answer 10

> XED = 0 means goods are unrelated.
XED > 0 means goods are substitutes.
XED < 0 means goods are complementary.
The higher the figure for XED, the stronger the relationship.

Question 11

Income Elasticity of Demand (YED)

Answer 11

> Can be positive or negative.

Question 12

YED formula

Answer 12

> % change in quantity demanded/ % change in real income.

Question 13

Normal Good

Answer 13

> A good for which demand increases as real income rises.

>YED > 0.

Question 14

Superior Good

Answer 14

> A good for which demand increases at a greater rate than real income when income rises.
YED > 1.

Question 15

Inferior Good

Answer 15

> A good for which demand decreases as income rises.

>YED < 0.

Question 16

Commodity

Answer 16

> A tangible good that can be bought and sold or exchanged for products of similar value.