Demand vs. Derived Demand

Attribute	Demand	Derived Demand
Definition	The desire for a product or service backed by the ability and willingness to pay for it.	The demand for a good or service that arises from the demand for another good or service.
Origin	Comes from consumers or end-users.	Comes from the demand for another product or service.
Price Elasticity	Price elasticity of demand measures how much the quantity demanded changes in response to a change in price.	Price elasticity of derived demand measures how much the demand for one good changes in response to a change in the price of another good.
Substitute Goods	Consumers may switch to substitute goods if the price of a product increases.	Derived demand may increase for substitute goods if the price of a related product increases.
Complementary Goods	Consumers may demand complementary goods together, such as peanut butter and jelly.	Derived demand may increase for complementary goods if the demand for a related product increases.

Definition

Demand refers to the desire or willingness of consumers to purchase a particular good or service at a given price. It is influenced by factors such as price, income, preferences, and the availability of substitutes. On the other hand, derived demand is the demand for a good or service that arises from the demand for another good or service. It is derived from the demand for the final product or service that the good or service is used to produce.

Origin

The origin of demand lies in the preferences and needs of consumers. Consumers make purchasing decisions based on their preferences, income levels, and the prices of goods and services. Demand can also be influenced by factors such as advertising, trends, and changes in consumer tastes. On the other hand, derived demand originates from the demand for the final product or service that the good or service is used to produce. For example, the demand for steel is derived from the demand for automobiles, construction, and other industries that use steel as an input.

Interdependence

Demand is independent of other goods and services, meaning that it is determined by consumer preferences and needs. Changes in the price of a good or service can lead to changes in demand for that particular good or service. On the other hand, derived demand is interdependent with the demand for the final product or service. For example, if there is an increase in the demand for automobiles, there will be an increase in the demand for steel, rubber, and other inputs used in the production of automobiles.

Price Elasticity

Demand is often characterized by price elasticity, which measures the responsiveness of quantity demanded to changes in price. Goods and services with elastic demand are more sensitive to price changes, while goods and services with inelastic demand are less sensitive to price changes. On the other hand, derived demand is influenced by the price elasticity of the final product or service. If the demand for the final product is elastic, the demand for inputs used in its production will also be elastic.

Factors Influencing Demand

Factors that influence demand include price, income, preferences, and the availability of substitutes. Changes in these factors can lead to shifts in demand curves, resulting in changes in the quantity demanded at a given price. On the other hand, factors that influence derived demand include the demand for the final product or service, the price elasticity of the final product, and the availability of alternative inputs. Changes in these factors can impact the demand for inputs used in the production process.

Examples

An example of demand is the demand for smartphones. Consumers make purchasing decisions based on factors such as brand, features, and price. If the price of smartphones increases, the demand for smartphones may decrease as consumers look for more affordable alternatives. On the other hand, an example of derived demand is the demand for labor in the construction industry. The demand for construction workers is derived from the demand for new construction projects. If there is a boom in the construction industry, there will be an increase in the demand for construction workers.