Explain how business demand is derived demand.

Expert Answers

An illustration of the letter 'A' in a speech bubbles

Derived demand is a need for a good or service that occurs consequently due to a demand of something else. For example, because there is an increase in demand for online shopping, there is thus an increase in demand for UPS trucks and truck-driving services.

Business demand follows this pattern...

See
This Answer Now

Start your 48-hour free trial to unlock this answer and thousands more. Enjoy eNotes ad-free and cancel anytime.

Get 48 Hours Free Access

Derived demand is a need for a good or service that occurs consequently due to a demand of something else. For example, because there is an increase in demand for online shopping, there is thus an increase in demand for UPS trucks and truck-driving services.

Business demand follows this pattern of derived demand because as need for products increases, business thus increases. This also works with prices. As demand increases, businesses have the ability to raise prices due to consumer needs. Going back to the online shopping example, business is on the rise so more packaging trucks and delivery drivers are needed. This increases business and opens up more employment opportunities. This growing need for trucks and deliverers demonstrates business demands.

Approved by eNotes Editorial Team
An illustration of the letter 'A' in a speech bubbles

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.

Approved by eNotes Editorial Team