Why is the demand for labor called a derived demand a it is set by the supply of labor?
Why is the demand for labor called a derived demand? Show
Get answer to your question and much more In the labor market, what are the firm’s demand curve for labor and the workers’ supply curveof labor? Get answer to your question and much more How is a firm’s wage normally determined in the labor market? Get answer to your question and much more How could Amazon decide to raise its minimum wage to $15 per hour, despite the federalminimum wage being fixed at $7.25 per hour? When the demand for a resource or intermediate good is a result of the demand for the final good or service What is Derived Demand?In economics, derived demand happens when the demand for a resource or intermediate good is a result of the demand for the final good or service. It was first introduced by Alfred Marshall in 1890 in his book, “Principles of Economics.” The market price of the derived product can be significantly impacted by the derived demand. Summary
The Chain of Derived DemandDerived demand comprises three components – raw materials, processed materials, and labor. The three elements are called the chain of derived demand. 1. Raw materialsThey are resources that are used in the production of a product. For example, lithium batteries are raw materials for cell phones. The level of demand for lithium batteries is directly related to the level of demand for cell phones (final product). 2. Processed materialsThey are products that have been built from assembling raw materials; steel, gas, and paper are examples of processed materials. 3. LaborLabor consists of the workers who facilitate the production of goods and the provision of services. The demand for labor depends on the demand for the final good or service – there is no demand for labor when there is no demand for the final product. Labor is a component of derived demand. The chain of derived demand is the flow of raw materials to processed goods to finished products with the help of labor. An increase in the demand for the end goods by the customer will trickle down to the beginning of the chain. For example, an increase in demand for stainless steel utensils will increase the demand for steel (processed goods), and in turn, increase the demand for iron ore (raw material). Effect of Derived Demand on the EconomyThe chain of derived demand will result in a ripple effect on a local and national level. On the local level, custom two-piece jackets sewn by local tailors will increase the demand of the local market for high-end fashion goods. On the other hand, higher demand for raw materials will lead to the creation of international trade for those raw materials. Types of Derived DemandThere are two types of derived demands – direct and indirect.
Derived Demand CurveThe concept of the derived demand curve can be constructed under two assumptions:
From the derived demand curve, a reader can understand the change in price and the quantity of raw materials due to a change in the demand for the final product. Therefore, the function of derived demand is the inverse of y = f(x). A graphical representation of the derived demand curve can be seen below: Where:
Exception to Derived DemandLow elasticity of derived demand is when the demand for raw material does not change significantly with the change in demand for the final product. It applies to products that are made from widely available raw materials. For example, wool is used to make jackets. During winter, the demand for jackets increases, but during the summer, the demand falls. The seasonal fluctuation in demand is not going to result in a major impact on the overall demand for wool. Additional ResourcesCFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:
Why is the demand for labor called a derived demand explain your answers and find an example of derived demand in the case given?Why is demand for labour called derived demand? Derived demand is the demand for a factor of production that results from the demand for another intermediate good. In the case of labour demand it is derived from the demand for a product or a service that labour produces.
Why is the demand for labor called a derived demand Brainly?The demand for labor is called a derived demand because the demand for labor comes from the demand for goods produced by labor.
What is the demand of for labour called?The function specifying the quantity of labor that would be demanded at any of various possible values of these exogenous variables is called the labor demand function. The sum of the labor-hours demanded by all employers in total is the market demand for labor.
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