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EFFICIENT SEARCH, DETERMINANTS: Two factors that affect information search are (1) the amount of purchase and (2) frequency of purchase. Goods that are relatively expensive increase the potential benefit of search. For example, saving 10 percent on the purchase price of a house is significantly more than saving 10 percent on the price of bar of soap. Buyers are thus likely to undertake extensive search when buying a house, but not for soap. Goods that are purchased more frequently also don't require extensive search activities. Since buyers already know the "best places" to buy the "highest quality" products at the "lowest prices" for frequently purchased goods, little can be gained from search.
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                           DERIVED DEMAND: The notion that the demand for a factor of production, or an input used in the production of a good, depends on the demand for the output being produced. This concept highlights the two key aspects of factor demand. One is that factor demand depends on the value of the good being produced. Inputs that produce more valuable outputs are themselves more highly valued. Two is that factor demand depends on the productivity of the input. Inputs that produce more output are themselves more highly valued. Factor demand is a derived demand. This means that the demand for an input is derived from, or depends on, the demand for the output. If the output is more highly demanded, then the inputs used in production are also more highly demanded. If the output commands a high price, then the inputs used in production also command a high price.Baseball or EconomicsFor example, Harold "Hair Doo" Dueterman thrills millions of fans from April to September as a superstar baseball player for the Shady Valley Primadonnas. His efforts contribute to the production of a highly valued entertainment product. Although he works only six months each year and usually only a few hours a day, he is paid millions of dollars for his productive services.In contrast, George Grumpinkston, an economics professor at the Ambling Institute of Technology, works longer and harder for twelve full months of the year. However, the educational service that he provides is not has highly valued. As such, his annual income is measured in thousands of dollars, rather than millions. The demand for "Hair Doo" Dueterman's services is derived from the demand for the baseball entertainment that he helps to produce. The demand for Professor Grumpinkston's services is derived from the demand for the educational product that he helps to provide. Because economics education is less valued than baseball entertainment, the demand for Professor Grumpkinston's input is less valued than the demand for "Hair Doo" Dueterman's input. Taco Demand Means Taco WorkersConsider how derived demand is revealed by the fabrication of Super Deluxe TexMex Gargantuan Tacos (with sour cream and jalapeno peppers) by Waldo's TexMex Taco World.When the demand for Gargantuan Tacos is greater, then Waldo needs to employ more taco-producing workers. When the demand for Gargantuan Tacos is less then Waldo needs to employ fewer taco-producing workers. As a profit-maximizing producer, Waldo does not hire workers in his restaurant simply for the companionship. Rather, Waldo hires workers to make tacos. If there is no demand for tacos, then there is no demand for taco-making workers. In particular, during the lunch hour Waldo's restaurant is bound to see a big demand for Super Deluxe TexMex Gargantuan Tacos and he is wise to have a large number of workers on the job to produced the tacos. Alternatively, mid-afternoon is just as likely to see a negligible demand for Gargantuan Tacos and Waldo is bound to have fewer workers. Two InfluencesThe notion of derived demand means that the demand for an input depends on two key things:- First, the productivity of the input, that is the marginal physical product. A more productive input, all things considered, is more highly demanded and tends to command a higher payment.
- Second, the demand for the output. An input that produces an output that is more highly valued, all things considered, is also more highly demanded and also tends to command a higher payment.
Recommended Citation:DERIVED DEMAND, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2022. [Accessed: June 25, 2022].
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BEIGE MUNDORTLE
[What's This?]
Today, you are likely to spend a great deal of time calling an endless list of 800 numbers wanting to buy either a large green chalkboard shaped like the state of Maine or a replacement battery for your pocket calculator. Be on the lookout for attractive cable television service repair people.
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Lewis Carroll, the author of Alice in Wonderland, was the pseudonym of Charles Dodgson, an accomplished mathematician and economist.
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"It is not fair to ask of others what you are unwilling to do yourself. " -- Eleanor Roosevelt, diplomat, activist
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FED
Federal Reserve
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