What is 'derived demand'?

Derived demand refers to a situation in which the demand for a given service or product is not independent but is influenced by the demand for another related service or product. In the context of transportation, for example, the demand for freight services is derived from the demand for goods being produced and sold. If demand for a specific product increases, businesses will need more transportation services to deliver those goods to market, indicating the interconnectedness of the two demands.

This concept captures the dynamic nature of market relations, where the demand for one service (like transportation) is directly linked to the demand for another (like manufacturing or retail). Understanding derived demand is crucial for transportation operations, as it helps businesses anticipate fluctuations in demand based on changes in related sectors.