Derived demand is an economic term that refers to the demand for a good or service that results from the demand for a different, or related, good or service. It is a demand for some physical or intangible thing where a market exists for both related goods and services in question. Derived demand can be spurred by what is required to complete the production of a particular good, including capital, land, labor, and necessary raw materials. The chain of derived demand refers to the flow of raw materials to processed materials to labor to end consumers.

For example, if the demand for a good such as wheat increases, then this leads to an increase in the demand for labor, as well as demand for other factors of production such as fertilizer. Producers have a derived demand for employees, as the employees themselves do not appear in the employers utility function; rather, they enable employers to profit by fulfilling the demand by consumers for their product. Another example is the derived demand for transport, as users of transport are very often consuming the service not because they benefit from consumption directly, but because they wish to partake in other consumption elsewhere.

Derived demand can have a significant impact on the derived products market price. The market price of the derived product can be significantly impacted by the derived demand. Derived demand comprises three components – raw materials, processed materials, and labor. The three elements are called the chain of derived demand. If demand for a final product increases or decreases, the derived demand for various components of the chain of derived demand decrease accordingly.

In summary, derived demand is the demand for a good or service that arises as a result of demand for another related good or service. It can be spurred by what is required to complete the production of a particular good, including capital, land, labor, and necessary raw materials. Derived demand can have a significant impact on the derived products market price. The chain of derived demand refers to the flow of raw materials to processed materials to labor to end consumers.