In economics, demand for workers or materials created by demand for a final product is called derived demand.
A business usually wants an input because the input helps produce something customers value. For example, demand for construction workers can rise when demand for new buildings rises, and demand for steel can rise when manufacturers plan to produce more cars. The input’s demand is therefore derived from demand elsewhere in the production chain.
Derived demand helps explain why labor and raw-material markets respond to changes in consumer markets. It also depends on productivity, input prices, the availability of substitutes, and how easily firms can change production methods. A strong final-product market does not guarantee equal growth for every input if technology or substitution changes.
The concept is especially important in labor economics. A worker’s marginal revenue product links the worker’s contribution to output with the revenue that output generates. Derived demand is distinct from joint demand, in which two or more goods are wanted together, such as printers and ink.