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.

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