Derived Demand
Economics notes
Derived Demand
➡️ Derived demand is the demand for a good or service that is derived from the demand for another good or service.
➡️ It is the demand for an intermediate good or service that is used to produce a final good or service.
➡️ Derived demand is determined by the demand for the final good or service, as well as the cost of production.
➡️ It is an important concept in economics, as it helps to explain the demand for certain goods and services.
➡️ Derived demand can also be used to explain the relationship between the demand for a good or service and its price.
What is derived demand in economics?
Derived demand refers to the demand for a good or service that arises as a result of the demand for another good or service. For example, the demand for steel is derived from the demand for construction and manufacturing activities that require steel as an input.
How does derived demand affect the pricing of goods and services?
Derived demand can have a significant impact on the pricing of goods and services. When the demand for a particular input increases, the price of that input also increases, which in turn increases the cost of producing the final good or service. This can lead to higher prices for consumers.
Can derived demand lead to market failures?
Yes, derived demand can lead to market failures if there is a lack of competition in the market for the input. In such cases, suppliers of the input may have significant market power and can charge high prices, leading to higher costs for producers and ultimately higher prices for consumers. This can result in reduced output and efficiency in the market.