What is composite demand?

Composite demand is straight forward, but can easily be confused with other types of inter-related markets. A good is in composite demand when it has more than one purpose.

Take oil for example, it can be used for both the production of petrol and rubber. What affect does this have in the market? Take a look at the diagram below.




Looking at the diagram above, when there is an increase in demand for one good that uses oil (petrol) there will be less oil to produce another good that uses oil (rubber), this causes a reduction in supply of rubber because more oil is being used for the produce of petrol.