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)the factor distribution of income.
D)a derived demand.

Question

Quizplus · Accepted Answer

The described relationship between the market for automobiles and the demand for workers who build them illustrates the concept of derived demand, which is when the demand for a factor of production (in this case, labor) is derived from the demand for the final product that the factor helps to produce. Option A refers to a different theory of income distribution that focuses on the idea that income is primarily determined by an individual's contribution to total output. Option B refers to a wage premium that compensates workers for undesirable aspects of a job, such as working in dangerous or unpleasant conditions. Option C refers to the way in which income is divided among different factors of production (such as labor, land, and capital), which is determined by the relative supply and demand for each factor.

When the Demand for Automobiles Is High,the Demand for Workers