Explain the concept of composite demand.

Composite demand refers to a situation where a good or service is demanded for more than one purpose.

In economics, the concept of composite demand is used to describe a scenario where a particular good or service is required for multiple uses. This means that the demand for this good or service is derived from its various applications. For instance, petroleum is a good with composite demand as it is used for heating, transportation, and as a raw material in various industries.

The key characteristic of composite demand is that an increase in demand for one use of the good or service can affect the availability and price for its other uses. This is because the total supply of the good or service is shared among its various uses. If the demand for petroleum for heating purposes increases, it may lead to a shortage of petroleum for transportation or industrial use, causing the price to rise.

Composite demand can have significant implications for market dynamics and economic planning. It can lead to competition between different uses of a good or service, and can cause price fluctuations and supply shortages. Understanding composite demand is therefore crucial for businesses and policymakers in managing resources and making strategic decisions.

Moreover, composite demand can also influence the elasticity of demand for a good or service. If a good or service has many substitutes for one use but not for others, its overall price elasticity of demand could be inelastic. For example, if petroleum's use for heating can be easily replaced by other energy sources but its use in transportation cannot, an increase in the price of petroleum may not significantly reduce its overall demand.

In conclusion, composite demand is a fundamental concept in economics that describes the multi-purpose nature of demand for certain goods or services. It plays a key role in shaping market dynamics and influencing economic decisions.