Derived demand
Topic: Factors of Production, Entrepreneurship and Startups · NCERT: Beyond NCERT
Meaning
Derived demand is demand for a factor of production or an input that comes from demand for the final goods it helps make. Firms do not want workers, steel or land for their own sake. They want them because people buy the products made with them. When demand for the final good rises, demand for its inputs rises too. When it falls, demand for the inputs falls.
Example
When more Indians buy cars, carmakers need more steel and more workers, so demand for both rises. If a restaurant's customers fall away, it needs fewer cooks and less gas.
Don't confuse with
- Direct demand (final demand): this is demand for a good that people want for itself, like a meal or a phone. Derived demand exists only because of that final demand.
Related concepts
- Demand for labour
- Marginal revenue product of labour
- Value of marginal product of labour
- Labour market
- Supply of labour
- Income-leisure trade-off
- Backward-bending labour supply curve
- Equilibrium wage rate
- Wage rate