Final answer:
The derived demand for labor is based on the demand for goods and services. As consumer demand for products increases, so does the need for labor. This interdependence signifies that labor requirements are a direct reflection of product demand.
Step-by-step explanation:
The derived demand for labor comes from the demand for goods and services. This concept, known as derived demand, indicates that the demand for labor is dependent on the consumer demand for the goods and services that labor helps to produce.
For example, if there is increased consumer demand for new automobiles, automakers will need to hire more workers to meet this demand. Similarly, the demand for chefs increases with more demand for restaurant meals, just as the demand for pharmacists rises with a higher demand for prescription drugs.
In essence, as the demand for goods and services shifts, so does the demand for labor. Employers adjust the level of labor they require based on production demand; thus, when product demand increases, labor demand shifts to the right, indicating an increase, and it shifts to the left, indicating a decrease, when product demand falls.