Interrelated Markets (Cambridge International A-Level Economics)
Exam board Cambridge International · A-LevelUpdated 2026-01-21
Relationships between different markets
- Markets do not operate in isolation
- Interrelationships can exist between markets in several ways
Market interrelationships
| 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 - Smartphones 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. 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
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. 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
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 decreased from P1 → P2, and the supply has increased from Q1 → Q2
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