(a) Explain how a change in demand for a good in one market can have an effect on the supply of a different good in another market.
1. If the demand for a certain good goes up then it’s supply will go up as well, this leads to more of the raw material needed to produce this good being used thus decreasing availability (in the case that the amount of the raw material is limited) to other goodsthat may be using this raw material as well. This is called composite demand. A good example for a scenario like this would be for example if a company’s factories use up a lot of electricity and scales up its production or opens new factories (in a massive scale) then electricity cost and availability for domestic use will change accordingly.
-demand goes up, raw material required increased,less raw material left for other industry. Electricity, milk, land. Composite demand.
2. Another way that demand for a good in one market can affect supply of another in a different market is if they were indirect substitutes for example the price of airplane tickets on the sales of cars, if plane tickets get very expensive then many people will prefer to own a car and travel by highways totheir destination.
-demand for good decreases due to price, supply of substitute goes up in anticipation to seize position. Example plane tickets and cars
(b) Explain how a change in supply of a good in one market can have an effect on the demand for a different good in another market
1. If the supply for a good falls heavily but the good is necessary and it’s demand is highly inelasticthen the non-necessary good’s demand will fall by as much as is necessary to compensate for people to buy it. A good example would be a steep rise in price of water (assuming no other liquids exist on the market) and the drastic decrease in the amount of iphones purchased.
-supply for good falls, demand inelastic, demand for other unnecessary (luxury) good falls. Water and iphones.
2.There is also another way that the supply of a good in one market can have an effect on the demand for a different good in another market. If the supply and accessibility of cars in a country with no modern infrastructure would go up, thus decreasing price and making it more accessible, then the demand for asphalt to make roads would skyrocket, this is an effect called complementary demand.
-supplygoes up, demand for linked product goes up, complementary demand. Cars and asphalt.
3. Another way that such a scenario could occur is if the shift in supply of a good raised the accessibility of a good that was before then had very high costs in obtaining before. What I mean by this is for example if the supply of aircraft flights increased, decreasing the price and decreasing the % ofincome spent on transport, then overseas holidays would become a lot more appealing to the majority of the population. If a trip to Liverpool and a trip to Paris cost the same, it’s logical to assume that cheaper flights would make a lot of people go to Paris instead.
-Higher supply of good makes other good more accessible and its demand rises. Travelling abroad and cheap flights
4. If the supplyof a good that is used as a raw material as well as an economic booster falls then the demand for other non-related goods may fall. A good example of this is how the brick-laying industry has fallen in demand and output in the uk; as the gas prices went up due to obstructed supply and a fall in growth as well as the crisis that hit the country. Brick producing plants use significant amounts of gasto produce their product, thus a increase in gas price would heavily hit them, the demand for bricks would also fall because people don’t have as much to spend anymore, not only because of the economic recession but also due to rising prices (lowered supplies) in other industries. The demand in large housing has severely gone down, now people prefer smaller, well build houses which means less...
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