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A LevelEconomicsAQARevision NotesIndividuals, Firms, Markets & Market Failure3. Price Determination in Competitive MarketsInterrelationships Between Markets

Interrelationships Between Markets (AQA A Level Economics)

Revision Note

Lorraine

Written by: Lorraine

Reviewed by: Steve Vorster

Different Types of Interrelationships Between Markets

  • 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

Analysing Interrelated Markets

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

markets-in-joint-demand

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 D2. 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

markets-in-joint-supply

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 → D2. 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 

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    Author
    Reviewer
    Lorraine

    Author: Lorraine

    Expertise: Economics Content Creator

    Lorraine brings over 12 years of dedicated teaching experience to the realm of Leaving Cert and IBDP Economics. Having served as the Head of Department in both Dublin and Milan, Lorraine has demonstrated exceptional leadership skills and a commitment to academic excellence. Lorraine has extended her expertise to private tuition, positively impacting students across Ireland. Lorraine stands out for her innovative teaching methods, often incorporating graphic organisers and technology to create dynamic and engaging classroom environments.

    Steve Vorster

    Author: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.