Final answer:
In the production of product X, if product Z is an input, this illustrates derived demand because the need for product Z is driven by the production and market demand for product X.
Step-by-step explanation:
In the production of product X, if product Z is an input, it illustrates derived demand. Derived demand occurs when the demand for one good or service happens as a result of the demand for another good or service. In this scenario, the demand for product Z is driven by the production and demand for product X. Therefore, as product X is produced and sought after in the market, the input product Z becomes necessary, creating a derived demand for it. This concept is fundamental in understanding how demand for various goods is interrelated within the production process.