Question

Factor market demand is called a derived demand because it                                                               

    a.) derives its name from the Latin factors.                           
    b.) is derived from the market wage received by workers.                   
    c.) is derived from the productivity of workers.                       
    d.) is derived from the product market.   

Answer 1

When the demand for a firm's product is high then the firm will want to sell more of that product to earn more profit. In order to sell more the firm has to produce more and to increase the production of that product the firm will need more inputs that goes into production of that product. Thus an increase in demand for a product increases the demand for factor inputs that is used to produce the product.  

Similarly when the demand for a firm's product fall then the firm will not be able to sell all it's product. As a result the firm will want to decrease the production of it's product. To decrease the production the firm will decrease the amount of inputs that goes into production of it's product. Thus a decrease in demand for product decreases the demand for factor inputs used to produce the product.

Hence the demand for factor inputs are derived from the demand for the product it produces. Or in other words the demand for factor inputs are derived from product market.

So correct answer is option(d).