3.3.6 - The Interrelationship Between Markets Flashcards
What is joint supply?
When one good is produced, another good is also produced form the same raw materials, perhaps as a by-product.
When is joint supply demonstrated?
The demand for beef increases, therefore you slaughter more cows, therefore the supply of leather is also increased.
If the demand curve for beef shifts to the right, what happens to the supply curve of leather?
The supply curve shifts to the right.
What happens to the price of leather due to the demand curve of beef shifting to the right?
The price of leather falls as there is a lot of excess supply.
What is the main product in the example of beef demand increasing and leather supply increasing due to joint supply?
Beef.
Draw the interrelationship between two goods in joint supply.
What is joint demand?
Items that are often used together have joint demand. As the demand for one increases, the other also does.
What is composite demand?
Composite demand is demand for a good that has more than one use. An increase in demand for one usage leads to reduced demand for another. e.g. if more oil is used for petrol, less is available to be converted to plastic.
What is derived demand?
Demand for a good or factor of production, wanted not for its own sake, but as a consequence of the demand for something else.
The demand for capital goods is derived from the demand of consumer goods. e.g. as the demand for cars falls, the demand for engines and gear boxes falls in turn.
What is composite demand related to?
The concept of competing supply.
What is the problem with current methods of biofuels?
Much of the grown maize in the US is used for biofuel production, as farmers stand to make more profit by selling their goods to an energy company rather than food companies.
This is an example of composite demand and competing supply.
Why are prices often unstable in agricultural markets?
As the agricultural markets are massively prone to disequilibrium and random shifts of the supply curve year on year due to climactic factors, there are often considerable changes in price year on year.
There has been a long-run downward trend within the agricultural market. Both the demand and supply curves have shifted rightwards.
The demand curve shift was caused by rising incomes and population growth.
The supply curve shift was caused by improving methods of farming.
For many farmers, supply has greatly exceeded the shift in demand.
Random shifts in the short-run supply cause price volatility.
The range of market prices ranges from year to year between P1 and P2.
