Prices can interact across different markets. We all know that the demand of a good increases when the price of its complementary good decreases, and the demand for a good increases when the price of its substitute increases. Basic economics teaches us to use the cross elasticity of demand to distinguish the relationship between goods (services).
Nowadays, almost all goods and services can be related together. For example, food price can be tightly related to the price of some financial products. The pricing of financial products is based on their financial companies’ economic models, in any economic model, inflation is an impossibly omitted factor, and food price is one of many determinants of inflation; therefore, food price is related to the price of financial products. Moreover, based on our individual preferences, it is not hard to find the reason that why every good is related.
Our consumption decision is based on two factors: budget constraint and personal preference. Any good or service consumes some proportion of the budget and difference utilities can be gained from different combinations of goods and services. Therefore, once our budget is pre-determined, to maximise our preference or achieve a certain level of utility, any change in consumption of one good or service must result in changes in consumption of other goods and services.
Therefore, all prices interact, some might show relatively weaker correlations than the others, this is because the interaction involves more complicated factors.
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