Interrelated goods and markets

Most goods and services are related in some way to other markets. This means that changes in market conditions for one product can have significant effects on the demand or supply in other markets. For example, changes in the price of petroleum are likely to have an effect on motor car sales.

Markets and goods can be connected in the following ways:

Derived demand

The demand for many products and resources is derived from changes in demand for other goods or services. For example, the demand for labour is derived from the demand for the products made by labour.

AD schedule - hypothetical

Here, the demand for the metal tungsten is partly derived from the demand for computers and smartphones (and of course many electrical and mechanical products).

Joint demand

Joint demand refers to the purchasing of one good at the same time as purchasing another good. For example, in demanding a theatre ticket, transport to the theatre will also be required, or purchasing a TV at the same time as a subscription to a film streaming service. These goods are also called complementary goods.

AD schedule - hypothetical

Here, the demand for motor insurance is jointly demanded with motor vehicles. To drive and own a motor vehicle requires motor insurance.

With joint demand the goods are complementary and the cross elasticity of demand between them is significant. The cross elasticity of demand between complementary goods is negative - which means that a fall in the price of motor vehicles results in an increase in demand for motor insurance.

Competitive demand

With competitive demand, the purchase of one product leads to a reduction in demand for an alternative. For example, increasing demand for one brand of printer paper will lead to a reduction in demand for an alternative brand. These goods are also referred to as substitute goods.

AD schedule - hypothetical

With substitute goods that are in competitive demand, the cross elasticity of demand between them is important in determining the impact of changes. The cross elasticity of demand between substitutes is positive - which means that a fall in the price of one brand of printing paper results in a fall in demand for another brand (as consumers switch to the cheaper brand.)

Composite demand

Composite demand refers to alternative uses of a single resource - most commodities have many alternative uses. For example, if more sugar is used to make ice cream there is less available to make chocolate. In this case, an increase in the demand for one good leads to a fall in the supply available for another good.

AD schedule - hypothetical

Here, sugar is used as an ingredient for many products, each 'competing' to use it. In this case, the demand for sugar to make ice creams reduces the available supply for other uses.

Joint supply

Joint supply refers to a situation where the production and supply of one good leads to the production and supply of another good. There are many instances where goods are by-products of other goods. In producing cheese, whey protein is a by-product which may be added to protein drinks.

AD schedule - hypothetical

To conclude, many markets are interconnected, and it is nearly always the case that changes in market conditions for one good in one market affect other goods in other markets.