Topic 3.6 The interrelationship between markets

Question 1

Derived demand

Answer 1

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

This is where both demand curves will shift to the right.

Question 2

Composite demand

Answer 2

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 cause an expansion along it’s supply curve. This means that more milk is used to make cheese, subsequently making milk less available, the cost of production increases which means there will be an inward shift in supply of butter (there is less input for the second good).

Question 3

Joint demand

Answer 3

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.

So if there is an increase in price for cameras, there will be a contraction along the demand curve, which causes demand to shift to the left for memory cards. Vice versa true.

Question 4

Joint supply

Answer 4

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

For example honey and beezwax. If there is an increase in demand for honey, then that means there is an expansion in supply for honey which causes an outward shift in supply for beezwax.

Question 5

Demand for substitues

Answer 5

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.

If the price of Coke increases, there will be a contraction along the demand curve, which causes an outward shift in the demand for Pepsi. Vice versa true.