14 - 1Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
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The Demand for Resources
14C H A P T E R
14 - 2Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
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NextSlide
EndEndShowShow
SIGNIFICANCE OFRESOURCE PRICING
•Money Income- Determination
•Resource Allocation
•Cost Minimization
•Policy Issues
14 - 3Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
MARGINAL PRODUCTIVITYTHEORY OF RESOURCE DEMANDResource Demand as a Derived
DemandMarginal Revenue Product
(MRP)•Productivity•Marginal Product (MP)•Product Price
MarginalRevenueProduct
=Change in
Total Revenue
Unit change inResource Quantity
14 - 4Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
MARGINAL PRODUCTIVITYTHEORY OF RESOURCE DEMAND
Rule for Employing Resources:
MRP = MRC
MarginalResource
Cost=
Change in Total (Resource) Cost
Unit change in Resource Quantity
14 - 5Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Percentage of Labor Force0 25 50 75 100
DevelopingCountries
IndustriallyAdvancedCountries
UnitedStates
Agriculture
Agriculture
Agriculture
Industry
Industry
IndustryServices
Services
Services
GLOBAL PERSPECTIVELabor Demand and Allocation: Selected Nations
Source: International Labour Organization
14 - 6Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Units ofResource
TotalProduct(Output)
MarginalProduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
]]]]]]
0 0 $2 $ 0
Consider the case ofresource demand under
Pure Competition
14 - 7Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Units ofResource
TotalProduct(Output)
MarginalProduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
01
0 7
7$2 2
$ 0 14
$ 14
14 - 8Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Units ofResource
TotalProduct(Output)
MarginalProduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
012
0 713
76
$2 2 2
$ 0 14 26
$ 14 12
14 - 9Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Units ofResource
TotalProduct(Output)
MarginalProduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
0123
0 71318
765
$2 2 2 2
$ 0 14 26 36
$ 14 12 10
14 - 10Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Units ofResource
TotalProduct(Output)
MarginalProduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
01234567
0 7131822252728
7654321
$2 2 2 2 2 2 2 2
$ 0 14 26 36 44 50 54 56
$ 14 12 10 8 6 4 2
The purely competitiveseller’s demand fora resource
14 - 11Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Units ofResource
TotalProduct(Output)
MarginalProduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
01234567
0 7131822252728
7654321
$2 2 2 2 2 2 2 2
$ 0 14 26 36 44 50 54 56
$ 14 12 10 8 6 4 2
The purely competitiveseller’s demand fora resource
Now, consider the caseof resource demand under
Imperfect Competition.
14 - 12Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Units ofResource
TotalProduct(Output)
MarginalProduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210 8 6 4 2R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Imperfect CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
01234567
0 7131822252728
7654321
$2.80 2.60 2.40 2.20 2.00 1.85 1.75 1.65
$ 0 18.20 31.20 39.60 44.00 46.25 47.25 46.20
$ 18.20 13.00 8.40 4.40 2.25 1.00 -1.05
The imperfectlyCompetitive seller’sdemand for a resource
14 - 13Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
DETERMINANTS OF RESOURCE DEMAND
Changes in Product Demand
Changes in Productivity• Quantities of Other
Resources• Technological Advance• Quality of the Variable
Resource
14 - 14Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
DETERMINANTS OF RESOURCE DEMAND
Changes in the Prices of Other Resources
Substitute Resources• Substitution Effect• Output Effect• Net Effect
Complementary ResourcesOccupational Employment
Trends
14 - 15Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
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EndEndShowShow
ELASTICITY OF RESOURCE DEMAND
Ease of Resource Substitutability
Elasticity of Product Demand
Ratio of Resource Cost to Total
Cost Ratio
Erd = Percentage change in resource price
Percentage change in resource quantity
Erd > 1 is ElasticErd = 1 is Unit-ElasticErd < 1 is Inelastic
14 - 16Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
OPTIMUM COMBINATIONOF RESOURCES
Least-Cost Rule
Profit-Maximizing Combination
MP of Labor MP of Capital
Price of Labor Price of Capital
MRPL
PL
MRPC
PC1
Least-Cost Combination of Resources
14 - 17Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
MARGINAL PRODUCTIVITY THEORYOF INCOME DISTRIBUTION
Inequality
Market Imperfections
derived demandmarginal product (MP)marginal revenue product (MRP)marginal resource cost (MRC)MRP = MRC rulesubstitution effectoutput effectelasticity of resource demandleast-cost combination of resources
profit-maximizing combination of resources
marginal productivity theory of income distributionENDBACKCopyright McGraw-Hill/Irwin, 2005
14 - 19Copyright McGraw-Hill/Irwin, 2005
Significance of Resource Pricing
Marginal Productivity Theory of Resource Demand
MRP as a Demand Schedule
Determinants of Resource Demand
Elasticity of Resource Demand
Optimum Combination of Resources
Marginal Productivity Theory of Income Distribution
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Wage Determination
Chapter 15
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