Derived Demand and Composite Demand

This video looks at the difference between derived demand and composite demand in markets

Derived demand

• Derived demand is the demand for a factor of production used to produce another good or service
• Steel: The demand for steel is strongly linked to the market demand for cars and the construction of new buildings
• Wood: Wood is a product where much of the demand comes from the uses to which it can be put such as furniture & fencing

Composite demand

Composite demand is where goods have more than one use

1. An increase in the demand for one product leads to a fall in supply of the other
2. An example is milk which can be used for cheese, yoghurts, cream, butter and other products including fertilizer
3. Another example is land – e.g. farmland can be developed in many different ways, urban land has different uses
4. Oil is used in many different industries such as plastics