Micro Economics Derived Demand

Questions: 1. Other than the demand for labour, what would beanother example of a derived demand? 2. Suppose that a 5% increase in the minimum wagecauses a 5% reduction in employment. How would thisaffect employers and how would it affect workers? Inyour opinion, would this be a good policy? Answers: 1. It can be assumed that 5% increase in the minimum wage would lead to the 5% reduction in the employment. It is predicted by the standard model of competitive market that an elevated minimum wage leads to joblessness among low-skilled workers. As a result, employers will start hiring more high-skilled workers as compared to low-skilled workers. On the other hand, employers face higher labor cost and are forced to react by decreasing other production operating cost. It is considered as a good policy as lesser jobs for the least skilled workers are most imperative (Krueger, 2015). 2. The demand for a factor of production as well as transitional goods that takes place as a result of the demand for another transitional is termed as derived demand. Derived in real meaning, the demand for one is reliant on that whose demand its demand is derivative from. Another example for derived demand, other than the demand for labor is the demand for steel that leads to derived demand for steel employees. This is mostly because; steel employees are requisite for the manufacture of steel. The price of steel also increases with the increase in the demand for steel (Phlips, 2014). References Krueger, A. B. (2015). The Minimum Wage: How Much Is Too Much?. New York Times. October, 9. Phlips, L. (2014). Applied Consumption Analysis: Advanced Textbooks in Economics (Vol. 5). Elsevier.