Economy sure can sound hard to a lot of people. Investments, deposits, all those fancy word can scare quite a lot of people into thinking that economy is something that only graduates with higher education can understand. That’s why large number of people doesn’t even try to dig deeper into the question and can be easily manipulated. To make sure that people know at least a little bit more about the economy as a subject we are going to look at something that sounds hard yet is in fact quite an easy thing to understand – derived demand.
What is derived demand? See, everything in the economic system is connected to one another. When a certain factor changes, it doesn’t only affect one thing, it affects the entire system. For example, let’s say that oil production has dropped down. What will happen? Most people will answer that the gas prices are going to go up and that’s true. However, the price of transportation will also go up and to offset that – the price of products that are being transported. See, everything is connected.
Derived demand marketing is all about creating demand where it previously was low or didn’t exist at all. Considering that all businesses are connected to each other, they can help each other to make sure that they promote every link of the system. There also is a term known a joint demand, which basically means the same thing as derived demand.
There is a reverse correlation, however, that we call composite demand. This happens when certain goods and services have way more than a singular use, so when there is a higher demand in product A it leads to a decrease in supply of product B. For example, eggs and chickens. If the demand on eggs get higher – less and less chickens are killed for meat, meaning that the supply of chicken meat gets smaller.
To educate a little bit more, we are also going to talk about the direct demand and a competitive demand. The first one is all about finished products. For example, people need furniture. But they don’t really care about all the products that come before – wood, lumber, etc. They demand the finished product only. Competitive demand takes place whenever a client has more than one option of goods that can both satisfy the needs of a customer.
These are some basic facts about supply and demand in our economy. By the way, as a homework try to create a derived demand graph – good information about it can be found at www.economicshelp.org. Just always remember – economics is nothing to fear and is a purely logical science. If anyone really tries to understand it – he or she will not have a hard time doing so.
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