<p>I agree, in the real world all markets are residual. unlike the theory laboratory where a product is clearly distinct from all other products, in reality there are always substitutes, and there are fine lines between one product and another.</p>

CC BY-SA 4.0
2020-10-28T17:37:23.053Z
2020-10-28T17:37:23.053Z
Rob Gramlich
<p>I’ve been thinking about how the introduction of a new product, say a new substitute, impacts market demand. Intuitively I know that it would decrease demand and increase elasticity. I am curious about the equations.</p>
<p>When thinking about demand shifters and related goods we usually only consider their price in the demand equation because they already exist.</p>
<p>For example - before new entry - we g as the good in question, rg1 related good 1:</p>
<p>(1) Q = <span class="math-container">$100 - 2p_{g} + 2p_{rg1}$</span></p>
<p>After new entry, would the equation be something like:</p>
<p>(2) Q = <span class="math-container">$90 - 3p_{g} + 2p_{rg1} + p_{rg2}$</span></p>
<p>So, the constant falls and the own slope increases in magnitude. My questions are as follows: (1) For equation (1), can we think of the 100 as the amount consumed given what you consume of the related food? (2) Can we think of a given market demand as a sort of residual demand given the existing products in the market? This is similar to how we think of things with monopolistic competition. I was just wondering if it was implicitly the same for the market as a whole. Thanks.</p>

<supply-and-demand><demand>
Are all market demands residual demands to some extent?
K Carroll
# Are all market demands residual demands to some extent?

(Asked by: username_0 on 2020-10-20)

I’ve been thinking about how the introduction of a new product, say a new substitute, impacts market demand. Intuitively I know that it would decrease demand and increase elasticity. I am curious about the equations.

When thinking about demand shifters and related goods we usually only consider their price in the demand equation because they already exist.

For example - before new entry - we g as the good in question, rg1 related good 1:

(1) Q = $100 - 2p\_{g} + 2p\_{rg1}$

After new entry, would the equation be something like:

(2) Q = $90 - 3p\_{g} + 2p\_{rg1} + p\_{rg2}$

So, the constant falls and the own slope increases in magnitude. My questions are as follows: (1) For equation (1), can we think of the 100 as the amount consumed given what you consume of the related food? (2) Can we think of a given market demand as a sort of residual demand given the existing products in the market? This is similar to how we think of things with monopolistic competition. I was just wondering if it was implicitly the same for the market as a whole. Thanks.

**Tags:** supply-and-demand, demand


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## 1 answers

### Answer by username_1 on 2020-10-28. Score: -1 | Accepted answer

I agree, in the real world all markets are residual. unlike the theory laboratory where a product is clearly distinct from all other products, in reality there are always substitutes, and there are fine lines between one product and another.


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