Econ: What is Derived Factor Demand?

What is Derived Factor Demand? Derived factor demand describes how the demand of a good or service is affected by the demand of a related good or service or the demand of the raw materials needed to create the product. An oversimplified example would be, say the demand for peanut butter randomly increased, it would be reasonable to see an increase in the demand for the peanuts needed to make it, and maybe an increase in the demand for jelly as it’s a product related to and used with peanut butter.

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Transcript

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the consumers want to buy more things that cheaper They

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Khun get him That's the consumer marketplace right there Derived

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factor Demand is am or less the same but just

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the opposite Derived factor Demand is the demand by firms

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for factors of production to make products which is dependent

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on consumer demand for those products derived factor Demand takes

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the supply and demand curves down the rabbit hole flipping

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everything upside down Well where are we not in Wonderland

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here and not in the consumer market either All right

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now we're in the labor market There we go In

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the labor market the people who were demanding are now

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supplying and the firms that were supplying are now dim

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ending at little topsy turvy There Here people are supplying

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their labour which means in the labor market workers own

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the upward sloping supply curve like in order for consumers

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to make money to buy all that stuff in the

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consumer market Most of them have to sell their labor

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right Justus The buyers air now sellers The sellers are

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now buyers Firms which sell things on the consumer market

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need toe by labor to help them make those things

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that they're selling in the labor market Firms owned the

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downward sloping demand curve that is the derived in derived

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fact or demand is because the demand for one thing

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creates the demand for the other like in the labor

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market The demand for goods in the consumer market creates

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the demand for workers to make that stuff in the

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labor market well the labor demand was derived from the

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market demand Yeah curious er and curious er So what's

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the factor in factor demand Well derived factor Demand applies

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to the labor market but also to all inputs in

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general For firms factors of production are the inputs they

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need to make the stuff they're selling And one of

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those things that they're selling includes labor just like consumers

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have The consumer market firms have their factor market the

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main factors of production that firms need to make things

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while things like the land and labor and capital in

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raw materials and intelligence demand for flower in the factor

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market is in part derived from the demand of qassem

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in the consumer market the firm demand for battery engineers

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well it's derived from consumer demand for longer lasting batteries

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and or cars that don't run on Dead Dinosaur Group

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because having your phone die or your car at the

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worst time is well the worst demand for rubber on

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the rise by firms during the baby boom era Yeah

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you bet Maybe because the increase in supply babies led

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to an increase in the demand for rubber duckies and

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or toys that bounced which increased factor demand for rubber

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Well maybe firms were making something else with the rubber 00:02:58.325 --> [endTime] Who knew Shmoop