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The demand for land is a derived demand - Leaving Cert Economics - Question 5 - 2009
Question 5
The demand for land is a derived demand. Explain what is meant by the underlined term with reference to land.
Worked Solution & Example Answer:The demand for land is a derived demand - Leaving Cert Economics - Question 5 - 2009
Step 1
Explain what is meant by derived demand with reference to land.
Answer
Derived demand refers to the demand for a factor of production that arises due to the demand for the final goods and services it helps to produce. In the case of land, it is not demanded for its own sake, but rather for its role in the production process. For instance, land is required for construction projects, agricultural production, and various business operations. Therefore, the demand for land is contingent upon the need for housing, businesses, or crops.
When there is an increase in the demand for housing, the demand for land tends to rise as well, because more land is needed to build homes. Conversely, if there is a reduction in the demand for housing, the demand for land will decrease as developers will require less land for construction. This illustrates the concept of derived demand—profitability and utility in production processes dictate the demand for land.