Interrelated Markets (Cambridge (CIE) A Level Economics): Revision Note

Relationships between different markets

• Markets do not operate in isolation

• Interrelationships can exist between markets in several ways

Market interrelationships 

1. Illustrating joint demand 

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

Markets for mobiles and mobile apps

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. Illustrating joint supply

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

Market for beef and 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 decreased from P₁ → P_{2, and} the supply has increased from Q₁ → Q₂