Key Characteristics of Composite Demand:

• Multiple Uses: The good or service can be used in various ways or for different products.
• Interconnected Uses: If demand for one use increases, it can affect the supply and availability for other uses.
• Allocation Trade-offs: More of the good allocated to one use means less is available for others, potentially driving up prices.

Examples of Composite Demand:

• Crude Oil: Crude oil is in demand for multiple products such as gasoline, plastics, chemicals, and heating. An increase in demand for oil for fuel may reduce its availability for other uses, like plastic production.
• Milk: Milk has several uses, including being consumed directly, used to make cheese, butter, yogurt, and other dairy products. An increase in demand for milk for yogurt production can reduce its supply for making cheese or butter.
• Steel: Steel is used in various industries such as construction, automobile manufacturing, and household appliances. A higher demand for steel in the construction sector can limit its availability for other industries like automotive production.

Impact of Composite Demand:

• Price Changes: As demand for a particular use of the good increases, the price of the good may rise, impacting its affordability or availability for other uses.
• Resource Allocation: Firms and industries must make decisions about how to allocate resources efficiently across the different uses of the good.

In summary, composite demand occurs when a good is demanded for several different purposes, leading to trade-offs in its allocation across those uses.