ABSTRACT
Only few goods depend on themselves in respect of demand or supply; most of them are interdependent.
In the level of prices the price of any commodity is a determining factor, but the level of prices decides the marginal utility of our income, which again determines our demand for consumers’ goods.
The price of all goods which have indirect utility, is a function of the price of another thing. This applies to raw materials, machinery, labour, and capital. For such goods the price of demand and, consequently, the market price of the finished article will affect the schedule of demand for the raw material. The subjective prices for the raw material are inversely proportional to the other expenses which are necessary to convert the raw material, and, consequently, also with other raw materials employed to make the finished article.
On the other hand, the price of all finished articles is dependent upon the cost of producing the raw materials and the machinery required, these factors determining the quantity of finished articles, which can be produced at the sale price obtainable.
Another connection between goods arises from competition between them.
Through Competing Demand.—Strictly speaking, a composite schedule of demand is always formed by the competition of demands; in this case, however, we refer to the fact that, for instance, saddlers and shoemakers have a competing demand for the same thing (leather). Then the price will be determined by the fact that the demand of two or more employments are competing for the article (raw material), so that alterations in one employment will affect not only the conditions for sale of the raw material, but also that of the other employment.
Competition in Production, the same raw material through a continued process of production may be transformed into different finished articles, so that one application excludes the other, for instance, egg and chicken, or cream, butter and cheese; in this case substitutionary relations also come in.
Competing Supply is present between a commodity and its substitute or between different qualities of the same commodity. In this case the schedule of demand for the first quality will be determined according to the price obtained for lower qualities.
Joint Demand is present when the demand for one thing necessitates demand for the other (pipe and tobacco, lamps and petroleum)—i.e., jointly they satisfy one demand. Joint demand is also present between several raw materials, which are used in the production of the same finished article. In this case the market conditions for one commodity will determine the price of demand of the other. Such goods are said to be in complementary relation to one another.
Joint Supply is present where different goods are produced in the same process of production (main product and by-product). From coal there is, for instance, produced gas, coke and tar, from the cotton plant fibre and seed, from a slaughtered animal nearly 50 products, from raw petroleum, refined petroleum (paraffin) and benzine. The interdependency becomes more complicated if the process can be varied—if, for instance, it is possible at will to extract more or less petroleum or more or less benzine from the raw oil, than it would if the proportion were given by the technical process itself. It is particularly in manufacture on a large scale that the utilisation of the by-products is made possible—i.e., that it pays to employ and collect waste material and convert it into by-products. Further, we will often meet with an intermediate case in which several goods are produced by the same process, but each of them further requires its own special process—e.g., petroleum and vaseline, or tar, benzol and dyes, etc. In a way, it is a case of joint supply if many different goods are produced at joint general expenses, and even when several otherwise independent goods are offered for sale from the same store.
