Interrelated Demand and Supply
- Interrelated Demand and Supply
Each market is studied independently, known as partial equilibrium, but obviously markets are linked. The demand for one product is affected by changes in the market for other related products. The demand for all products is related because all products compete for the scarce budget, the increase in the price of one product can affect all other purchases.
The products are used in conjunction with one another. A shift in demand for one product will shift the demand curve of its complementary product as well e.g. DVD players and DVDs.
Demand arises from several sources, and an increase in demand for products for use in a sector will decrease the availability of the products for use in another sector e.g. electricity for domestic or commercial uses.
The products are substitutes for each other. A rightward shift in the demand curve of one product will result in a leftward shift of the demand curve of the other product. This is most evident in cases where consumers switch to a cheaper commodity to maximise their satisfaction using their fixed disposable income e.g. chicken or duck.
Demand for one product is derived from the demand for another product. This is akin to Complementary Demand, but different in that for Derived Demand, one good is involved in the production process of the other product e.g. cars and the steel used to make cars.
Products are produced jointly. The increase in the supply of one will lead to an increase in supply of the other. That is to say, it is impossible to produce one product without indirectly producing more of another product, as both of them are derived from the same sources. For example, beef and leather, which has a common source of the cow.
This is the case where producers can produce either of two or more products, so if they produce more of one, they will produce less of another. Hence, their demands are inversely proportional to each other. For example, chicken and eggs.
* Complement good
* Supply and Demand
* Elasticity (economics)
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