Derived Demand

What is 'Derived Demand'

Derived demand is a term used in economic analysis that describes the demand placed on one good or service as a result of changes in the price for some other 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. The derived demand can have a significant impact on the derived good's market price.

BREAKING DOWN 'Derived Demand'

The demand that is derived from the demand from another good can be an excellent investing strategy. Think about a "pick and axe" strategy. During the gold rush, the demand for gold prompted prospectors to search for gold. These prospectors needed picks and axes (and other supplies) to mine for gold. It is arguable that on average, those who were in the business of selling supplies to these prospectors faired better during the gold rush than the prospectors did. The demand for picks and axes was derived, to a large degree, from the demand for gold at that time.

RELATED TERMS
  1. Normal Good

    An economic term used to describe the quantity demanded for a ...
  2. Axe

    The interest that a person or trader shows in buying or selling ...
  3. Demand Shock

    A sudden surprise event that temporarily increases or decreases ...
  4. Quantity Demanded

    A term used in economics to describe the total amount of goods ...
  5. Law Of Supply And Demand

    A theory explaining the interaction between the supply of a resource ...
  6. Derivative Product Company - DPC

    A special-purpose entity created to be a counter-party to financial ...
Related Articles
  1. ETFs & Mutual Funds

    4 Ways You Can Invest In Gold Without Holding It

    Owning gold can be a store of value and a hedge against unexpected inflation. Holding physical gold, however, can be cumbersome and costly. Fortunately, there are several ways to own gold without ...
  2. Markets

    Why is Gold a Counter Cyclical Asset?

    Gold is widely considered a safe haven during market turbulence. History has proven gold performs counter cyclically to the state of the U.S. economy.
  3. Markets

    Why Gold's Price is More than 'Supply and Demand'

    The price of gold is moved by a combination of factors. But the way they work together is sometimes counterintuitive.
  4. Markets

    What's Aggregate Demand?

    Aggregate demand is a macroeconomic term describing the total demand in an economy for all goods and services at any given price level in a given time period.
  5. ETFs & Mutual Funds

    Why Gold Matters

    Gold is a very useful investment during periods of instability and high inflation.
  6. Trading

    Why Gold Prices Keep Rising

    Gold has returned more than 120% over the last five years. Find out why some analysts think this investment still has room to grow.
  7. Managing Wealth

    8 Reasons To Own Gold

    This precious metal's rich history stems from its ability to maintain value over the long term.
  8. ETFs & Mutual Funds

    The Midas Touch For Gold Investors

    Find some golden opportunities by investing in gold commodities or futures contracts.
  9. Personal Finance

    The Gold Standard Revisited

    Think the value of gold is unshakable? Read this chronicle of its rise and fall.
  10. Markets

    China's Connection to the Recent Gold Crash

    Learn about the connection between the Chinese stock market crash and gold's crash. China is the world's largest source of gold demand.
RELATED FAQS
  1. Do supply and demand always cancel each other out?

    Learn more about supply and demand and how these factors drive economic activity. Find out more about demand elasticity and ... Read Answer >>
  2. How does the law of supply and demand affect prices?

    Learn what the law of supply and demand is, what relationship it has with prices, and how the law of supply and demand affects ... Read Answer >>
  3. Is demand or supply more important to the economy?

    Learn more about the impact of supply and demand in an economy. Find out why companies study supply and demand as part of ... Read Answer >>
  4. How does the law of supply and demand affect the housing market?

    Learn about the law of supply and demand, the relationship between supply and demand and how the law of supply and demand ... Read Answer >>
  5. What is demand-side economics?

    Learn the basic theory of demand side economics, which emphasizes the importance of aggregate demand and supports government ... Read Answer >>
  6. What are some examples of inelastic goods and services that are not affected by the ...

    Find out how the laws of supply and demand function for goods and services considered highly inelastic, including goods not ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center