Question

When the Toyota Prius first entered the marketplace, dealers kept waiting lists of people wanting one and the factories had to ramp up production and order more raw materials. Increased factory product indicates derived demand.

A. True
B. False

Answer 1

The correct answer is A. True.

Step-by-step explanation:

Derived demand is the demand for goods and services that is generated as a result of the demand for other goods and services. This type of demand usually corresponds to the demand for factors or products, since the demand for a good or service may be related to the process necessary to produce another good or service, although it can affect both producers and consumers.

Derived demand can sometimes lead to an increase in the price of a marginal product, since the demand for the resources needed to produce a physical product also increases.

The elasticity of the demand for a productive factor depends on the characteristics of the good. This dependency is explained through Marshall's laws:

1. Replaceability, elasticity is greater the more easily one factor can be substituted for another in the production process.
2. The elasticity of the demand for a factor will be greater the more elastic the demand for the good it produces. If the demand for the product varies, so will the demand for the factor.
3. The elasticity of demand for the factors also depends on the elasticity of the other factors involved in the production process.
4. Demand for the factor will be less elastic the lower its cost compared to the total cost of production.