held constant. Second, competitive markets for the final good and all other factors of production are always in equilibrium. The derived demand curve answers the question what quantity, x, of the selected factor of production would be demanded at an arbitrary price, y, under the above conditions. The inverse of the relationship, y = f (x), is the graphical representation of Marshall’s derived demand curve for the selected factor of production. Its equilibrium price and quantity are determined by the intersection of this demand curve with the supply curve of the factor of production. Low Elasticity of Derived Demand A low elasticity of derived demand encourages supply restrictions. A low elasticity results out of a lack of a good substitute, an inelastic demand for the final good and inelastic supply of other factors of production. Furthermore, the selected factor of production's expenditure share must be small compared to the total production cost which is often referred to as the 'importance of being unimportant'. John Hicks relaxed the assumption of fixed production coefficients which imply a lack of good substitutes in his new concept of the elasticity of substitution. According to him, in order for elasticity of derived demand to be low, ‘It is “important to be unimportant” only when the consumer can substitute more easily than the entrepreneur’. In other words, only when the elasticity of demand for the product exceeds the elasticity of input substitution, it is important that the factor of production's expenditure share is small compared to the total production cost. References External links Demand analysis Demand