Chapter 14, Problem 1QFR

To determine

To explain:

The reasons demand for factor inputs is considered as derived demand.

Explanation of Solution

Demand for factors is the demand for factor inputs at different factor prices.Demand for a good is the quantity demanded of a good at different prices of that good.

A higher demand for a good implies that the production of that good increases. As a result, the demand for factor inputs required for production of that good increases. This means that demand for factor inputs is derived from the demand of the goods in production of which those factors are employed. Hence, factor demand is derived demand.

Economics Concept Introduction

Demand for factors:It is the demand for factor inputs at different factor prices.

Demand for good:It is the quantity demanded of a good at different prices of that good.

Derived demand:When the demand for a good or service arises as the outcome of the demand for another good or service, it is referred as derived demand.