What it is:
Joint supply is the simultaneous output of two or more products from a single process or material.
How it works (Example):
Products that are generated in joint supply cannot be produced independently from one another. For this reason, joint supply outputs increase in direct relation to the size of the raw material supply.
For example, the refinery process for crude oil yields petroleum as well as paraffin, lubricants and the chemical bases plastics. A rise in the supply of crude oil results in a commensurate rise in the supply of petroleum, paraffin, lubricants, etc.
Why it Matters:
In joint supply, a production increase in response to a rise in demand for one output results in a commensurate rise in the production of all other outputs. As a result, the prices of the accompanying outputs decline if there is no change in the demand for them.