unit 5 resource market 1. review 1.give an example of derived demand. 2.define mrp. 3.explain the...
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MRP (S L ) = MRC (D L ) 3TRANSCRIPT
Unit 5
Resource Market
1
Review 1. Give an example of Derived Demand. 2. Define MRP.3. Explain the difference between MRP and MR.4. Why does the MRP fall as more workers are
hired?5. Identify the two ways to calculate MRP.6. Define MRC.7. Explain the difference between MRC and MC.8. How does a firm decide how many workers to
hire?9. List 10 words ends with “ink”
2
MRP (SL ) = MRC (DL )
3
Units ofLabor
TotalProduct(Output)
01234567
0 7172427293027
Wage = $20 / Price = $10
MarginalProduct
(MP)
- 710
7321
-3
ProductPrice
0 10
101010101010
0 7010070302010
-304
Marginal Revenue Product(MRP)
Shows how many
workers a firm is
willing and able to hire at different
wages.
0 7010070302010
-30
Units ofLabor
TotalProduct(Output)
01234567
0 7172427293027
MarginalProduct
(MP)
- 710
7321
-3
ProductPrice
0 10
101010101010
5
Marginal Revenue Product(MRP)
Plotting the MRP/Demand curve
Demand for this
resource
Wage = $20 / Price = $10
Drawing the Demand Curve for Resources
6
Demand = MRP
Why is it downward sloping? Because of the law of
DIMINISHING MARGINAL RETURNS
7
Each additional resource is less productive and therefore is
worth less than the previous one
Wage
QL
$100
80
60
40
20
Dl=MRP
Quantity of Workers 1 2 3 4 5 6 7 8
This model applies to LAND, LABOR, & CAPITAL
Video: Did You Know?
8
Why do people with only high school degrees make less money
on average?
Employers assume they have low productivity and will generate less
additional revenue.9
Does having an education mean that you will automatically have a higher
income?
10
Real Life Application Top 5 Fastest Growing Jobs (2000-2010)
1. Computer Software Engineers, Applications
2. Computer Support Specialists3. Computer Software Engineers, Systems4. Computer Systems Administrators5. Data Communications Analyst
Top 5 Fastest Declining Jobs1. Railroad Switch Operators2. Shoe Machine Operators3. Telephone Operators4. Radio Mechanics5. Loan Interviewers
“You’ve got to learn computers!”
11
WHY & NOW WHAT?
Real Life Application
12
Ten most profitable majors and the average starting salary (Aug, 2013): 1. Petroleum engineering $98,0002. Chemical engineering $67,5003. Nuclear engineering $66,8004. Electrical engineering $63,4005. Computer engineering $62,7006. Aerospace engineering $62,5007. Mechanical engineering $60,1008. Materials science & engineering $60,1009. Industrial engineering $59,90010.Computer science $58,400
Shifting the Demand Curve for Resources
13
Resource Demand Shifters1. Changes in the Demand for the
Product Price increase of the product increases
MRP and demand for the resource.
2. Changes in ProductivityTechnological Advances increase
Marginal Product and therefore MRP/Demand.
3. Changes in Price of Related ResourcesSubstitute ResourcesEx: What happens to the demand for
assembly line workers if price of robots falls? Complementary ResourcesEx: What happens to the demand nails if the
price of lumber increases significantly?
14
Units ofLabor
TotalProduct(Output)
Price = $10 / Wage = $20
01234567
0 7172427293027
MarginalProduct
(MP) - 7107321
-3
ProductPrice
0
10101010101010
0 7010
070302010
-30
Marginal Resource
Cost
020202020202020 15
Marginal Revenue Product
How would change if the DEMAND for the good INCREASED
significantly?
Units ofLabor
TotalProduct(Output)
Price = $10 $100 / Wage = $20
01234567
0 7172427293027
MarginalProduct
(MP)
- 7107321
-3
ProductPrice
0 0 10100 10100 10100 10100 10100 10100 10100
Marginal Resource
Cost
16
Marginal Revenue Product
0 7001000
700300200100
-300
Each worker is
worth 10X more
THIS ISDERIVE
DDEMAN
D
2. Value of each worker would increase.
1. Price of product would increase.
What happens if DEMAND for the PRODUCT INCREASES?
MRP increases causing demand to shift right
17
Dl’=MRP’
Wage
QL
$100
80
60
40
20
Dl=MRP
Quantity of Workers 1 2 3 4 5 6 7 8
In other words, MRP represents
the value of each worker.
18
What’d change if the PRODUCTIVITY of each worker
INCREASED?Units ofLabor
TotalProduct(Output)
Price = $10 / Wage = $20
01234567
0 7172427293027
MarginalProduct
(MP) - 7107321
-3
ProductPrice
0
10101010101010
0 7010
070302010
-30
Marginal Resource
Cost
020202020202020
Marginal Revenue Product
TotalProduct(Output)
01234567
00 770
171702424027270292903030027270
Price = $10 / Wage = $20
MarginalProduct
(MP) -
70100
70302010
-30
ProductPrice 0
10101010101010
0 7001000
700300200100
-300
Marginal
Revenue
Product
Each worker is
worth more!
More demand
for resource.
2. Value of each worker would increase.
1. Marginal Product would increase.Units ofLabor
19
Identify the Resource and Shifter (ceteris paribus):1. Increase in demand for microprocessors leads to
a(n) ________ in the demand for processor assemblers.
2. Increase in the price for plastic piping causes the demand for copper piping to ________.
3. Increase in demand for small houses (comparing to big houses) leads to a(n) ________ the demand for lumber.
4. For shipping companies, __________ in price of trains leads to decrease in demand for trucks.
5. Decrease in price of sugar leads to a(n) _________ in the demand for aluminum for soda producers.
6. Substantial increase in education and training leads to an _________ in demand for teachers and trainers.
increaseincrease
decreasedecrease
increase
increase 20
Practice3 Shifters of Resource Demand
Shifting the Supply Curve for Resources
21
1. Number of qualified workersEducation, training, & abilities
required
2. Government regulation/licensingWhat if waiters had to obtain a license
to serve food?
3. Personal values regarding leisure time and societal roles.Why did the US Labor supply increase
during WWII?Why do some occupations get paid more than
others?
Resource Supply Shifters
Use supply and demand analysis to explain why
surgeons earn an average salary of $137,050 &
gardeners earn an average salary of $13,560.
Quantity of Workers
Wag
e Ra
te
SL
DL
Supply and Demand For Surgeons
Supply and Demand For Gardeners
Quantity of Workers
Wag
e Ra
te SL
DL
How many workers you should hire?
Workers Per DayPainting
s Per Day
Perfectly Competitive Resource Market
Wage = $30/day Price = $3/unit
0 1 2 3 4 5 6 7 8 9 10
0 3 10 20324661 70808885
How many workers you should hire?
Perfectly Competitive Resource Market
Wage = $25/day Price = $6/unitWorkers Per DayPainting
s Per Day
0 2 4 6 8 1012 14161820
0 3 8 142129 384654 6168
How many output you should produce?
Paintings Produced 0 1 2 3 4 5 6
Total Cost(in Dollars) 20 27 38 53 72 95 122
Perfectly Competitive Product Market
Price = $20/unit
27
What are other reasons for differences in wage?
Labor Market Imperfections- Insufficient/misleading job information-
This prevents workers from seeking better employment.
Geographical Immobility- Many people are reluctant or too poor to
move so they accept a lower wage Unions
Collective bargaining and threats to strike often lead to higher than equilibrium wages
Wage Discrimination- Some people get paid differently for doing
the same job based on race or gender. (VERY ILLEGAL)
The Effects of Unions in Competitive Labor Market
1.The Union is successful in requiring that new teachers have to pass a state competency test to be employed.
2.The Labor Union successfully conducts a national advertisement to get people to buy union products.
3.The Union educates workers in new methods of production, which leads to increased productivity.
4.The union promotes national legislation to increase tariffs placed on foreign products.
5.The Labor Unions bargains for and wins an increase in the wage rate above the equilibrium wage rate.
6.The labor union signs an agreement that employers can only hire union members.
Wag
e
QL
SL
DL
The Effects of Unions in Competitive Labor Market
1.The Union is successful in requiring that new teachers have to pass a state competency test to be employed.
2.The Labor Union successfully conducts a national advertisement to get people to buy union products.
3.The Union educates workers in new methods of production, which leads to increased productivity.
4.The union promotes national legislation to increase tariffs placed on foreign products.
5.The Labor Unions bargains for and wins an increase in the wage rate above the equilibrium wage rate.
6.The labor union signs an agreement that employers can only hire union members.
QL
Wag
e SL
DL
SL1
DL1
DL1
DL1
QL
Wag
e
SL
DL
Wag
e
QL
SL
DL
SL1
QLW
age
SL
DLW
age
QL
SL
DL
Wag
e
QL
SL
DL