Interrelationships Between Markets (AQA A Level Economics)

• Markets do not operate in isolation. Interrelationships can exist between markets in several ways

The Interrelationships Between Markets 

Relationship	Explanation	Example
Joint demand	When consumers use two products together, also known as complementary goods The change in price of one good impacts the demand for the other good	Coffee and sugar Cereal and milk Smart phones and mobile apps
Competitive demand	Two goods are used for the same purpose, also known as substitute goods The change in price of one good impacts the demand for the other good	Cinema tickets and online streaming services Tea and coffee E-books and printed books
Composite demand	Two or more goods require the same input to make them An increase in production of one good could lead to a decrease in supply of another good, as less of the input is available	Cheese and yogurt require the same input (milk) Growing crops or raising livestock requires the same input (land)
Derived demand	Demand for a good or service arises from the demand for another good or service  The demand for inputs is derived from the demand for the final product	Aluminium and cars Labour and goods & services
Joint supply	The supply of two different goods stems from the same source The increase in production of one good will increase the production of another good. The second good may be a by-product of the first good	Beef and cow leather Poultry meat and feathers  Honey and beeswax

1. Analysing markets in joint demand 

• Changes to the price of one good shift the entire demand curve of a complementary good 

Diagram: Markets for Mobiles & Mobile Apps

Increases in price of mobile phones, shift the entire demand curve of mobile apps to the left

Diagram analysis

Market for mobiles

• An increase in price for mobiles from P₁→P₂ leads to a movement up the demand curve
  • Due to the increase in price, there is a contraction in QD from Q₁→Q₂
    

Market for mobile apps

• As a result of price increase for mobile phones, there will be an decrease in demand for mobile apps (the complementary good) as more consumers become buy less 
  • This causes a shift in demand from D₁ to D_{2. The price remains unchanged at P1} but the demand has decreased from Q₁→Q₂ 

2. Analysing markets in joint supply

• As the production of beef increases, the supply of leather will increase (as it is a by-product of beef)

Diagram: Market for Beef & Leather

An increase in demand for beef increases the the supply of leather

Diagram analysis

Market for beef

• If the real income of individuals of a country increase, there may be an increase in demand for beef (considered a normal good)
  • This causes a shift in demand from D₁ → D_2. The price has increased from P₁ → P₂  and the quantity has increased from  Q₁ → Q₂
    

Market for leather 

• When there is an increase of quantity of beef, there will be an increase in the supply of leather
  
  • This is a shift in supply from S₁ to S₂. The price increased from P₁ → P₂  and the supply has decreased from Q₁ → Q₂