The demand for wood and labour is an example of______

Analyze the question: The question asks what type of demand applies to wood and labour. Neither is wanted for its own sake. Both are wanted because of what they help produce, for example furniture.

Concept:

• Effective demand: the desire for a good backed by the ability to pay.
• Complementary demand (joint demand): demand for goods used together, such as car and fuel, or bread and butter.
• Derived demand: demand for a good or factor of production that arises from the demand for the final product it helps make.
• Competitive demand: demand for goods that are substitutes, such as Indomie and spaghetti.

Solution:

1. Wood is an input, a raw material, used to make furniture such as tables, chairs and doors.
2. Labour is a factor of production, and carpenters are hired to make that furniture.
3. Demand for both depends on how much consumers demand the finished furniture. If demand for furniture rises, carpenters and wood are demanded more. If it falls, they are demanded less.
4. This is the definition of derived demand.

You could argue that wood and labour are also used together, which would make them complementary. However, the question is really about why they are demanded. That reason is the demand for the final product, so "derived demand" is the best answer.

Answer: C. Derived demand

Exam tip: When a question mentions factors of production (land, labour, capital) or raw materials, think derived demand. Remember it as: "Derived = demanded because of something else."