Derived Demand
Plain definition
Derived demand means the demand for a factor of production comes from the demand for the final product it helps produce.
In economics
Firms do not want labor or steel for their own sake; they want them because consumers want the goods made with them. Hence demand for bricklayers shifts when demand for new houses shifts, and factor demand depends on productivity and product price.
Example
Demand for flour millers' labor rises when bread sales rise, even though consumers never directly buy milling labor.
Common confusion
Derived demand does not mean factor prices must move with product prices; a rise in product demand shifts factor demand, but the factor price also depends on factor supply.