Explain what is meant by "derived demand" as it relates to factors of production

The demand for a factor of production is derived from the underlying demand for the final good or service that the factor produces. A firm does not wish to employ, and pay for, the factor for itself-the firm wishes to employ the factor for what the factor will add to the profitability of the firm. Therefore, an increase in the price of the final good or service, which will increase the profitability of production, will also lead to an increase in demand for the factor.