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Joint supply and competitive supply
Let's briefly introduce two more important concepts in economics: joint supply and competitive supply.
Joint supply
Look at what you are wearing right now. It’s very likely that your clothes contain the most popular material in the world - cotton!
💭 Did you know that during the processing of cotton to make fabrics, cottonseed is a major by-product? Cottonseed can be used to produce cottonseed oil, which is used in cooking and food products.
So, when we talk about joint supply:
- An increase in the production of cotton for fabrics results in more cottonseed being produced.
- This demonstrates joint supply, where the production of one good (cotton) leads to the production of a by-product (cottonseed).
Definition: Joint supply is where an increase or decrease in the supply of one good leads to an increase or decrease in the supply of a by-product.
We can illustrate our cotton and cottonseed example in a demand and supply diagram:
Competitive supply
Aldi's Competitive Supply Decision
Let's use Aldi's strategic decision to introduce a new line of vegan products amidst a growing trend: 8.6 million people in the UK are following a meat-free diet:
Aldi needs to allocate its limited resources—such as shelf space, marketing budget, and supplier contracts—between these new vegan goods and their existing products, like their range of meat products.
- 👉 This is an example of competitive supply, where Aldi must decide which product line will attract more customers and generate more profits.
- 👉 If Aldi dedicates more resources to vegan products, they might have to reduce the resources allocated to other popular items - there is an opportunity cost here!
- 🌱 Opportunity Cost: There is trade-off involved in resource allocation.
- This choice requires Aldi to evaluate which product line will yield the highest customer satisfaction and profitability.
Definition: Goods in competitive supply are alternative products a firm can produce with its given resources.
We can illustrate our supply of vegan and meat products in a demand and supply diagram:
Summary comparison
Joint Supply | Competitive Supply |
The production of one good automatically results in the production of another | Resources are allocated between different products that compete for those resources |
These are by-products that are produced together | These products compete for limited resources like land, shelf space, or budget |
For example, Cotton and cottonseed | For example, vegan products and meat products in a grocery store |
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