U.S. Geological Survey Open-File Report 2006-1025
By John L. Sznopek
The word "demand" has different meanings for different people. To some, it means their "wants and needs," to others it is what they consume. Yet, when considering economics, demand refers to the specific amounts of goods or services that individuals will purchase at various prices. Demand is measured over a given time period. It is determined by a number of factors including income, tastes, and the price of complementary and substitute goods. In this paper, the term consumption is used fairly synonymously with the term demand. Most mineral commodities, like iron ore, copper, zinc, and gravel, are intermediate goods, which means that they are used in the production of other goods, called final goods. Demand for intermediate goods is called derived demand because such demand is derived from the demand for final goods.
When demand increases for a commodity, generally the price rises. With everything else held constant, this increases the profits for those who provide this commodity. Normally, this would increase profits of existing producers and attract new producers to the market. When demand for a commodity decreases, generally the price falls. Normally, this would cause profits to fall and, as a consequence, the least efficient firms may be forced from the industry.
Demand changes for specific materials as final goods or production techniques are reengineered while maintaining or improving product performance, for example, the use of aluminum in the place of copper in long distance electrical transmission lines or plastic replacing steel in automobile bumpers. Substitution contributes to efficient material usage by utilizing cheaper or technically superior materials. In this way, it may also alleviate materials scarcity. If a material becomes relatively scarce (and thus more expensive), a more abundant (and less expensive) material generally replaces it (Wagner and others, 2003, p. 91).
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For questions or comments concerning the scientific content of this report, contact Lorie A. Wagner.