What Is Derived Demand: Goods and services are necessary for the satisfaction of human wants. Some goods satisfy our wants directly e.g. Books, Television, food etc. The demand for these goods is direct. On the other hand some goods satisfy our wants indirectly, e.g. machinery, buildings, raw materials etc. The demand for these goods depends upon the demand for the goods which they produce. For instance the demand for textile machinery depends upon the demand for clothes. Since the demand for textile machinery is derived from the demand for clothes, it is said to be derived.
Derived Demand Definition: When the demand for a product is limited to the purchase of some parent product, its demand is called derived demand. This demand is derived from another goods which has direct demand or autonomous demand.
The Characteristics Of Derived Demand
1. The derived demand is an indirect demand. It depends upon the demand for the goods which directly satisfy the human wants. Since it depends on the demand for other goods, it is not autonomous demand.
2. The goods which have derived demand are complementaries in nature but Substitutes are not derived.
3. Derived demand generally possesses less price elasticity. For example, a 10 percent cut in the price of steel would cause only about one percent cut in the price of a machine when other costs remaining the same.
4. This demand facilitates demand forecasting. For example, demand for Tyres can be estimated on the basis of the demand for motor cars.