Question

What is derived demand? Can theory around derived demand apply to other scenarios or events that we may experience or be exposed to? Expand upon this discussion with your original thoughts, ideas and perspectives.

Answer 1

Derived demand is a scenario where demand for one good leads to demand for other goods and services. Such as when there is demand for cars, people demand oil because it is required in order to drive the car. As people demand cars, it leads to demand for oil.

Theory around derived demand can be applied to other scenarios and events that one can experience or be exposed to via the use of complementary goods such as one can use derived demand concept to get to know the fact that as demand for computers rise, so will the demand for complementary goods such as software and accessories, because of derived demand one gets to anticipate that there will be an increase in demand for other computer accessories. This helps one to anticipate investment and capacity building infrastructure where there will be demand for sure.

In the same way this theory can be applied to increase government expenditure on a set of complementary goods so that the country reaps the profits of demand derived from the consumption of goods and services. One can also apply it to the real world scenario and anticipate a price increase of the intermediate goods such as wood, when the demand for furniture increases drastically.