A firm's demand for labor is known as a derived demand because:

• A. it arises from the supply of labor available to the firm
• B. it is determined solely by the wage rate in the labor market
• C. it is independent of the firm's production decisions
• D. it depends on the demand for the goods and services the firm produces

Answer: (D)

Verified step by step guidance

1. Understand the concept of derived demand: Derived demand refers to the demand for a factor of production (like labor) that arises not from the factor itself, but from the demand for the final goods and services that the factor helps produce.
2. Recognize that a firm's demand for labor depends on its production decisions because labor is an input used to produce goods or services.
3. Note that the demand for labor is not determined solely by the wage rate; instead, it depends on how much labor is needed to produce the quantity of goods demanded by consumers.
4. Connect the firm's labor demand to the demand for its output: if the demand for the firm's goods increases, the firm will need more labor to produce more output, increasing labor demand.
5. Conclude that the firm's demand for labor is called derived demand because it is derived from the demand for the goods and services the firm produces, not directly from the labor market conditions alone.