Topic 3.6 The interrelationship between markets

Question 1

Price mechanism allocates resources by

Answer 1

setting relative prices to determine the factors of production used in producing each good

Question 2

Derived demand

Answer 2

This is when the change in demand of one good results in a change in demand for another good. E.g the demand for houses incease, so will the demand for bricks

Question 3

Composite demand

Answer 3

This is when the raw material used in the production process has more than one use. For example (assuming there is a fixed supply in milk), the increase in demand for cheese will result in less supply for butter

Question 4

Joint demand

Answer 4

This is when 2 goods are bought together. For example, the increase in demand for cameras will result in an increase in demand for memory cards

Question 5

Joint supply

Answer 5

The supply of one good causes the increase or decrease in the supply of another good

Question 6

Demand for substitues

Answer 6

If there is an increase in the demand of good X (potentially causes by a decrease in price), then there is a decrease in demand for good Y