The demand for a factor of production is a derived demand. Derived demand means that:

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The question asks about the meaning of derived demand for a factor of production and presents four options for why a factor's demand is derived.
Option a: 'a firm’s demand for a factor of production is derived from its supply decision' This reflects the standard definition of derived demand in production economics: a firm’s need for inputs depends on what and how much output it plans to produce, i.e., its output market decisions drive input demand.
Option b: 'the firm’s demand can be mathematically derived' While there are mathematical relationships linking output decisions to input demand, this statement is not what is meant by derived demand. The core idea is about causation from output demand, not a claim about a general ability to derive it mathematically.
Option c: 'both the demand for and supply of factors of production is derived from an external market' This misstates the concept. Derived demand refers to the demand side for inputs being driven by the demand for final goods, not that both supply and demand are externally derived from some market.
Option d: 'the demand curve for a good is derived from the factors of production used to produce that good' This reverses the typical relationship. The demand curve for a good is determined by consumers and their preferences, incomes, and prices, while derived demand describes how that good's demand creates demand for the inputs used to produce it.
In summary, option a correctly captures the essence of derived demand by tying input demand to the firm's production and output decisions, whereas options b, c, and d misinterpret the concept or misstate the causal relationships involved.

MCD2020 - T1 - 2025 Lecture Quiz 10 - International trade and Labour market

The demand for a factor of production is a derived demand. Derived demand means that:

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