Key Points about Derived Demand:

• It occurs because the demand for inputs (factors of production such as labour, raw materials, or machinery) is driven by the demand for the final goods or services that these inputs help produce.
• Derived demand is indirect: people don’t directly demand these inputs for their own sake, but because they are needed to produce something else that consumers want.

Example:

• Labour Demand: The demand for construction workers is derived from the demand for new homes or buildings. If more people want to buy houses, the demand for construction labour increases.
• Raw Materials: The demand for steel is derived from the demand for cars or buildings, as steel is an essential input in their production.

Thus, derived demand links the demand for inputs to the demand for the final products that utilise those inputs.