Explain how business demand is derived demand.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Not all business demand is derived demand.  Certainly, the demand for the things that some businesses make is derived demand.  However, there are some businesses for which demand is not derived.

Derived demand is demand that comes about not because of the good or service itself, but because of what it is used for.  As an example of this, there is not really much demand for cloth.  Most people do not have much use for cloth.  Instead, they have a use for the clothes that are made from cloth.  Therefore, the demand for cloth is generally derived demand, but the demand for clothing would not be derived.

So, we cannot say that all businesses’ demand is derived.  There are some firms that sell things that people do specifically want.

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