Composite Demand

Definition of composite demand – Demand for a good that has multiple different uses. e.g. People may demand oil because it can be used to create either petrol or plastics.

  • People may demand wheat for producing bread, biofuels or feeding livestock.
  • Land can be used for farming or building houses.
  • Steel could be used for building tanks or it could be used for building bicycles.

When a good like wheat has different uses, there is a rationing effect. If demand for biofuel goes up, then the price of wheat for bread will also rise. More people demanding wheat for biofuels limits the availability of wheat for making bread.

If we build more houses, it leaves less land for farming and the price of farming land will tend to rise.

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