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Exploring Economics 7th Edition

Exploring Economics (7th Edition)

Book Edition7th Edition
Author(s)Sexton
ISBN9781285859439
PublisherCengage Learning
SubjectEconomics
Section 16.1: Input Markets
In Text Question
SECTION QUIZ 1
Section 16.5: The Markets for Land and Capital
Figure Question
Chapter 16, Section 16.1, In Text Question, Exercise 01
Page 445

What is a derived demand?

Explanation

QUESTION:

  • "A derived demand is a desire for a good or service derived from another good or service's demand." The demand for steel, for example, is generated from the demand for automobiles. The demand for automobiles stems from the need for transportation. The demand for travel determines the need for transportation.
  • The demand for steel, for example, is generated from the demand for automobiles. The demand for automobiles stems from the need for transportation. The demand for travel determines the need for transportation.
  • The parent refers to the latter good or service, whereas the child refers to the former. In general, increased parent demand leads to increased child demand, but not the other way around.
  • In order to be formed, a derived demand requires the presence of additional products or services. This means that a deriving good must have some use in itself, but also serves as an input in production and consumption of other goods and services. 
  • Derived uses are often referred to as "demand for demand," because it is based upon some other type of consumption activity. For example, if people consume alcohol, they may feel hungry and purchase fast food as well as pizza delivery. The two basic types of derived demand include: complementary goods and competitive goods.

Answer

QUESTION:

"A derived demand is a demand for a good or service that is derived from the demand for another good or service." If we take the example, food and clothing are basic necessities of life and people are born with an innate need for both food and clothing. If we look at the market behavior, one finds that there is a strong interdependence between food and clothes. The same person may need both these goods in different proportions depending on his/her financial status, climatic conditions and social factors like marriage etc.

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