Question

When the demand for automobiles is high, the demand for workers who build automobiles is high. This relation between the market for automobiles and the market for the labor that builds automobiles is why demand in a factor market is called:
A. the marginal productivity theory of income distribution.
B. a compensating differential.
C. a derived demand.

Answer 1

Answer:

C. a derived demand.

Explanation:

Derived demand is a rise in the demand of a product due to the increase in demand for related or intermediate goods.  If two distinct goods or services are used together, a rise in the demand of one will cause the demand for the other to rise. Products or services used together are called complementary goods.

Derived demand is primarily as a result of the usage of a product in the production or consumption of other goods or services. In this case, the demand for workers is solely due to a rise in the demand for cars. Should the demand for vehicles decrease, then the demand for workers will fall.