Interrelated Markets
Classic Examples Printers, and the Printer Ink Coffee Machines and the Capsules That Go In Them, Razors, and Blades.
These Are All Good Examples Of Complementary Goods. So Let’s Look At It Here. First Of All the Demand for Printers, So the Market for Printers Here,
And Then The Demand For Printer Ink If The Price Of Printers Let’s Say Goes Up From Pone To P Two, Or We What Are We Going To Show There, We’re Going To Show A Contraction Of The Demand For Printers There Is A Contraction, Contraction Of Demand When It Comes To Printers.
The Price Of Printers Goes Up It’s Going To Shift The Demand For Printer Ink Left Consumers Are Going To Be Willing And Able To Buy Printer Ink, Which Is Going To Shift Demand To The Left At The Same Price, Causing Demand To Reduce
The Price Of Printers Is Changing, Which Is Why We Move Along The Demand Curve There That Will Shift The Demand For A Compliment, In This Case, Printing To The Left Or Vice Versa If The Price Of A Compliment Goes Down. So Let’s Change The Example.
We Look At The Price Of Razors Here The Market Raises The Demand For Razors, And Then We Look At The Demand For Razor Blades On The Right-Hand Side Here.
Let’s Not Say That The Price Of Razors Has Decreased From Pone To P Two Here, Which Will Lead To An Extension Of Demand For Raises. So Let’s Label That Extension Of Demand Here. Okay, So the Price of Raises A D as Decrease,
This Is What We Move Along The Demand Curve And Shows An Extension Of Demand That But That Will Shift The Demand For Razor Blades To The Right As More People Will Now Purchase Razor Blades As They Purchase Razors.
Complements, Substitutes, Derived & Composite Demand, Joint Supply
At The Same Price, There Is Now Going To Be A Shift Of Demand To The Right And An Increase In Demand For Razor Blades. So This Is The Interrelationship Between Markets When There Are Complementary Goods That Are In Joint Demand.
And This Is How We Will Show The Impact On A Diagram. Yeah. What About Substitute Goods That Are In Competitive Demand?
Coke and Pepsi, Big Mac and the Whopper Apple IPhone and the Samsung Galaxy or Classic Examples of Substitute’s Loads Out There In The Real World.
So Just to Speed Things Up, I’ve Already Shown The Price Changes I’m Going To Stick To Coke And Pepsi Is A Very Simple Classic Example, Where The Price Of Coke Is Changing In Both Cases,
What Happens To the Demand for Pepsi the Demand for a Substitute Well the Price of Coke Goes Up Demand for a Substitute
Will Shift To The Right So Here We Show The Price Of Coke Going Up And We See A Contraction Of Demand We Move Along The Demand Curve When It Comes To Coca Cola Here And We See A Decrease In Quantity Demanded There.
When The Price Of Coke Goes Up Demand For A Substitute A Pepsi Will Shift To The Right, More Consumers Will Be Willing And Able To Buy Pepsi And We See At The Same Price There Is A Greater Demand For Pepsi Demand Shift To The Right.
Whereas When The Price Of Coke Decreases, We See An Extension Of Demand For Coke, We Move Down The Demand Curve We See An Increase In The Quantity Demanded Of Coke.
A Coke Is Cheaper Demand For A Substitute If Pepsi Will Shift To The Left From Done To D Two At The Same Price, Which Reduces The Demand For Pepsi From Q1 To Q2.
The Basic Idea Is As The Price Of A Substitute Changes, We Move Along The Demand Curve For That Good.
But Then Demand For Another Substitute Will Shift Either To The Right If The Price Of A Substitute Goes Up Or To The Left If The Price Of A Substitute Goes Down. That’s How We Show It Very Simply On Diagrams, Easy, Easy Stuff.
Let’s Continue Now By Looking At Derived Demand Is Just When The Demand For A Good Or Service Comes From The Demand For Something Else.
You Can Think Of This As Input Demand, When Demand Is Something Increases Demand For The Input Will Increase Too Right. So Inputs Are A Derived Demand Coming From The Demand For Something Else.
We Look At A Diagram How Do We Show It Very Simply, Here We’ve Got The Car Market On The Left, Let’s Say There Is An Increase In The Demand For Cars For Some Reason, There Is Therefore Going To Be An Increase In The Demand For The Input.
The Demand For Aluminum Is Derived From The Demand For Cars Whenever You Have A Derived Demand Here, When The Demand For Whatever The Good Or Service That Needs, The Input Goes Up, Demand For The Input Will Go Up, Because It’s A Derived Demand.
Therefore, The Demand For Aluminum Will Shift To The Right. And That’s Going To Be The Final Result Here.
Okay, So Wherever We Have A Derived Demand When The Demand For Whatever The Good Or Service That Needs, The Input Goes Up, Demand For The Input Will Increase Because It’s A Derived Demand.
Just like When There Is Economic Growth in the Economy, Demand For Labour Will Increase Reducing Unemployment, When There Is An Increase In The Demand For Foreign Holidays, They’ll Be An Increase In The Demand For Airline Travel, Which Is Necessary To Supply Those Foreign Holidays.
That’s The Idea Of Derived Demand. Think Of It As Input Demand. Let’s Continue By Looking At Composite Demand. Composite Demand Is The Idea That Two Goods Require The Same Input To Make Them. And Therefore If There Is An Increase In The Production Of One Good,
They’ll be a Decrease in the Supply of the Other Because There Is Less of the Input Available to Make the Other Good. So Good Examples Are Bread and Livestock Which Require the Same Input, Which Is Wheat,
Cheese And Butter, Which Requires The Same Input A Milk, Let’s Look At The Market That Cheese And Then The Butter Market, Let’s Say There Is An Increase In The Demand For Cheese,
That There Is An Increase In The Demand For Cheese, Be An Increase In The Price Of Cheese Eventually, But Crucially, An Increase In The Quantity Of Cheese. So there’ll Be More Production and Cheese Taking Place,
That’s The Idea Of Composite Demand. Okay, And Therefore There’ll be a Reduction in Supply by Causing This Change in the Market for Butter. So That’s The Idea Because Two Goods Use The Same Input.
When There’s An Increase In The Production Of One Good, It Means There Is Less Input Available When It Comes To Making The Second Good, Reducing The Supply Of A Second Good Here Good Example For You There. That’s It Let’s Move On and Look At Joint Supply.
The Best Way To Understand That Is With An Example, Beeswax Is Very Useful In Producing Candles And Lipsticks.
When The Production Of Crude Oil Goes Up, The Supply Of Petroleum Apparently Will Naturally Increase Because They Require Crude Oil To Produce Them If We Want To Show The Ig Idea Of Joint Supply On A Diagram, How Will We Do It? Well, Lets
Look At Honey And Beeswax. These Two Goods Are In Joint Supply When The Production Of Honey Goes Up, The Supply Of Beeswax Will Shift To The Right, That’s All You Need To Know.
So How Do We Show An Increase In The Production Of Honey? Well, Maybe It Comes From An Increase In The Demand For Honey. When Demand For Honey Increases, You Can See Here, There Is An Increase In Production, That’s The Most Important Thing.
When There Is More Production Of Honey Taking Place, There Is Going To Be An Increase In The Supply Of Beeswax From S One To S Two.
There May Be An Increase In Supply May Be An Increase In Demand Showing An Increase In The Production Of Crude Oil.
Be an Increase in the Supply of Petroleum Paraffin, Which Requires Crude Oil To Produce Them Simple As Those Goods In Joint Supply. Easy, Easy, Easy To Show,
That Finishes This Whole Topic Area Of The Interrelationship Between Markets.