Legal Definitions - derived demand

Derived demand refers to the economic principle where the demand for a particular good, service, or resource is not desired for its own sake, but rather because it is necessary to produce another good or service that *is* directly desired by consumers.

In simpler terms, the demand for an input (like a raw material, component, or labor) is "derived" from the demand for the final product it helps create. If the demand for the final product increases, the demand for its inputs will also likely increase, and vice-versa.

• Example 1: Specialized Microchips for Smartphones

  The demand for highly specialized microchips, which are essential components in modern smartphones, is a clear instance of derived demand. Consumers don't typically purchase these microchips directly; instead, they buy smartphones. Therefore, the demand for these microchips is entirely dependent on the global demand for smartphones. If more people want to buy new smartphones, then smartphone manufacturers will need to produce more devices, which in turn increases their demand for the specialized microchips. Conversely, if smartphone sales decline, the demand for these microchips will also fall.

• Example 2: Commercial Pilots for Air Travel

  The demand for commercial airline pilots is derived from the demand for air travel services. Individuals and businesses want to fly from one location to another, whether for vacations, business trips, or cargo transport. They don't directly seek to "hire a pilot" in isolation. Airlines, responding to the public's desire for air travel, then create a demand for qualified pilots to operate their aircraft. If the public's desire for air travel increases (e.g., due to economic growth or lower ticket prices), airlines will expand their routes and fleets, thereby increasing their derived demand for pilots. If air travel demand decreases, the demand for pilots will also likely decrease.