A Level Economics AQA Practice Exam

Derived demand is primarily associated with which of the following?

1. Surplus goods

2. Intermediate goods or services

3. Substitutes in consumption

4. Luxury items

The correct answer is: Intermediate goods or services

Derived demand refers to the demand for a factor of production or intermediate goods that arises from the demand for final goods and services. This concept is crucial in understanding how the demand for one product is contingent upon the demand for another. In this case, intermediate goods or services — which are used to produce final products — generate derived demand because as the demand for the final product increases, so does the demand for the components that are necessary to produce it. For example, if there is an increase in demand for cars, the demand for steel, tires, and other intermediate goods used in car manufacturing will also rise. This illustrates how the derived demand functions in relation to the production and consumption cycle in economics. Other options do not correctly represent this concept. Surplus goods pertain to excess supply rather than the interrelated nature of demand. Substitutes in consumption concern how one product can replace another without a consideration of their production dynamics. Luxury items are often seen as products of discretionary spending and do not inherently tie into the derived demand of intermediate goods within the production process. Thus, the association of derived demand with intermediate goods or services is most accurate.