Introduction

What do you think will happen to the demand for labour to produce fried chicken pieces if the demand for fried chicken pieces decreases?

Think again.

Correct. If the demand for fried chicken pieces decreases, the firm will produce fewer fried chicken pieces and the demand for labour used in the production of fried chicken pieces will decrease as well. This is true for any good or service produced by firms. If the demand for steel decreases, then the demand for steelworkers decreases. If the demand for haircuts increases, then the demand for barbers will increase.

Think again.

Since the demand for labour depends on the demand for the good or service it helps to produce, we refer to it as a derived demand – it is derived from the demand for the good or service. This applies to other production factors such as land and capital as well. The demand for the factors of production is derived from demand for the good or service produced by the factors of production.