4.1.3.6 The interrelationship between markets

How does a competitive market work?

• operates through the interaction of demand and supply

• As demand for G&S changes ~~> it has an impact on other markets

• Firms will move away from markets where demand has fallen and into markets that have seen an increase in demand

• This leads to an increase in supply —> firms move into new markets

What does joint demand mean?

• occurs when an increase in Demand for one good will see an increase in demand for a complementary good

What do the graphs for joint demand show?

What does competing demand/ substitute goods mean?

• competing demand is when an increase in demand for one good decreases demand for the other

• This effect depends on various factors

• Number and closeness of available substitutes

What does the graph for competing demand look like?

What does composite demand mean?

• an increase in demand for one good/service will decrease supply or availability e.g oil

• There are competing uses for the same product

What do the composite demand graphs look like?

What does Derived Demand mean?

• increase of demand for a product is the result of demand for another good or service

• E.g demand for tinned tomatoes creates demand for metal used to make the tin

• Increasing demand for products creates double demand

What do the graphs for derived demand look like?

What does joint supply mean?

• production of a product creates a by product that can be supplied

What do joint supply graphs look like?