A firm's demand for labor is known as a "derived demand" because
A)the firm gains utility from hiring more labor.
B)the amount of labor hired depends upon how much output the firm can sell.
C)the wage rate paid to workers is derived from the market for labor.
D)it is derived from the demand for capital.

Question

Quizplus · Accepted Answer

The term "derived demand" means that the demand for a product or service is derived from the demand for another product or service. In the case of labor, the demand for workers is derived from the demand for the goods or services that these workers produce. Thus, the amount of labor hired by a firm depends on how much output the firm can sell. Therefore, option B is the correct answer. Options A, C, and D are incorrect because they do not accurately reflect the concept of derived demand for labor.

A Firm's Demand for Labor Is Known as a "Derived