Derived Demand And Autonomous Demand
Demand for goods is classified in many ways in Economics. On the basis of the nature of demand for goods, demand is classified into derived demand and autonomous demand. When the demand for a good depends on the demand for other goods, it is known as derived demand.
Demand for cement and iron is an example for derived demand. Cement itself is not demanded by any one. Its demand is influenced and determined by the nature and extent of construction activities. Similarly, the demand for producers goods is an example of derived demand. Demand is said to be autonomous when the demand for a good is not determined and influenced by other goods. Autonomous demand is a rare phenomenon. Almost all goods possess derived demand.
Difference Between Derived Demand And Autonomous Demand:
Derived demand and autonomous demand have their distinct characteristics and so they differ from each other in the following ways:
Firstly, the goods having derived demand possess greater elasticity of demand than the goods which have autonomous demand. Because the demand of goods having derived demand depends on the prices of other goods.
Secondly, when the combination of two goods is definite, derived demand helps us to estimate the future demand. But it may not be possible to estimate the future demand at all times. For example the derived demand for iron and steel in future depends upon the supply of and demand for iron and steel. The production of iron and steel can be increased in future if its present demand is more. But the production of iron and steel can be increased by employing more laborers and machinery. As a result balance between demand and supply can be achieved.
Thirdly, derived demand is indeterminate. But autonomous demand is determinate. Especially in the case of those goods having alternative uses, determination of derived demand becomes a problem.