Joint Supply

Joint supply is an economic term referring to a product or process that can yield two or more outputs. Common examples occur within the livestock industry: cows can be utilized for milk, beef and hide; sheep can be utilized for meat, milk products, wool and sheepskin. If the supply of cows increases, so will the supply of dairy and beef products.

Where joint supply exists, the supply and demand for each product is linked to the others originating from the same source. For example, if demand increases for wool, and sheep farmers therefore raise more animals for wool, there will eventually be increased sheep meat production, resulting in greater meat supply and potentially lower prices.

In some cases, the proportions of the joint products are nearly fixed, such as with cotton and cotton seed. In such cases, proportions cannot be varied. In other eases, the proportion can be varied. For example, through cross-breeding, it is possible to breed sheep either for wool or for meat. The quantity of one can be increased at the expense of the other. If that sheep farmer then responds to a market demand for mutton, he will simultaneously flood the market for wool (unless he's raising those sheep specially bred for meat). In such a scenario, the additional supply will drive wool prices down. Analysts keep a close eye on products in joint supply because investments in one can be significantly impacted by what happens with the other. 

Another important issue for joint supply products is the allocation of expenses. Since both products are derived from the same source, it is often difficult to figure out how to divide up expenses. It is not usually feasible to simply split the expenses down the middle in the case of two products, because one product usually sells for more than the other. An equal split will artificially deflate or inflate profits on one product or the other. Likewise, randomly allocating expenses will produce artificial results.

Joint demand isn't necessarily related to joint supply. Rather, joint demand happens when demand for two goods is interdependent. For example, printers need ink to function. Similarly, ink cartridges are no use without a printer. Another example could be a razors and razor blades or gasoline and motor oil. Basically, joint demand is when you need two goods because they work together to provide a benefit for the consumer. If two goods are in joint demand, they will have a high and negative cross elasticity of demand. In other words, a fall in the price of ink will increase demand for printers.