The idea that the demand for intermediate goods is derived from the demand for the final goods they help produce is obvious and appealing. It was implied by Cournot (1838, pp. 99–116) and explicitly stated by Gossen (1854, pp. 31, 113) and Menger (1871, pp. 63–7). That the British classical school failed to make use of such a perspective – Mill’s famous proposition that ‘demand for commodities is not demand for labour’ (1848, Book I, ch. 5) came close to denying it – was doubtless due to the strong emphasis placed on prior accumulation of capital as a prerequisite for production. But it was Alfred Marshall in his Principles of Economics (1890, pp. 381–93, 852–6) who introduced the term ‘derived demand’ and developed the concepts of the derived demand curve for an input and the elasticity of derived demand.
KeywordsCost functions Derived demand Elasticity of substitution Hicks, J. R. Marshall, A. Robinson, J. V.
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