Unit 5: The Resource Market

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Unit 5 The Resource Market
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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. Name 10 Colleges

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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.
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Does having an education mean that you will
automatically have a higher income?
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Real Life Application

• Top 5 Fastest Growing Jobs (2000-2010)
• Computer Software Engineers, Applications
• Computer Support Specialists
• Computer Software Engineers, Systems
• Computer Systems Administrators
• Data Communications Analyst

• Top 5 Fastest Declining Jobs
• Railroad Switch Operators
• Shoe Machine Operators
• Telephone Operators
• Radio Mechanics
• Loan Interviewers
• WHY?

Youve got to learn computers!
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Real Life Application
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Video Did You Know?
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The MRP of a resource equals the Demand.
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Drawing the Demand Curve for Resources
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Yesterday's Activity
Wage 20
Price 10
Total Product (Output)
Marginal Product (MP)
Units of Labor
Product Price
MRP
0 1 2 3 4 5 6 7
- 7 10 7 3 2 1 -3
0 10 10 10 10 10 10 10
0 70 100 70 30 20 10 -30
0 7 17 24 27 29 30 27
Shows how many workers a firm is willing and able
to hire at different wages.
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Use the following data
Wage 20
Price 10
Total Product (Output)
Marginal Product (MP)
Units of Labor
Product Price
MRP
0 1 2 3 4 5 6 7
- 7 10 7 3 2 1 -3
0 10 10 10 10 10 10 10
0 7 17 24 27 29 30 27
0 70 100 70 30 20 10 -30
Demand for this resource
Plotting the MRP/Demand curve
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DemandMRP
Why is it downward sloping? Because of the law
of diminishing marginal returns
Wage Rate
100 80 60 40 20
Each additional resource is less productive and
therefore is worth less than the previous one
DMRP
Q
1 2 3 4 5 6 7 8
Quantity of Workers
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DemandMRP
Wage Rate
This model applies to land, labor, and
capital Notice the inverse relationship between
wage and quantity of resources demand
100 80 60 40 20
DMRP
Q
1 2 3 4 5 6 7 8
Quantity of Workers
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What happens if demand for the product increases?
Wage Rate
100 80 60 40 20
MRP increases causing demand to shift right
D1MRP1
DMRP
Q
1 2 3 4 5 6 7 8
Quantity of Workers
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3 Shifters of Resource Demand

• 1.) Changes in the Demand for the Product
• Price increase of the product increases MRP and
  demand for the resource.
• 2.) Changes in Productivity
• Technological Advances increase Marginal Product
  and therefore MRP/Demand.
• 3.) Changes in Price of Other Resources
• Substitute Resources
• Ex What happens to the demand for assembly line
  workers if price of robots falls?
• Complementary Resources
• Ex What happens to the demand nails if the price
  of lumber increases significantly?

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Drawing the Demand Curve for Resources
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Use the following data
Wage 20
Price 10
Total Product (Output)
Additional Revenue per worker
Additional Cost per worker
Marginal Product (MP)
Units of Labor
Product Price
0 1 2 3 4 5 6 7
- 7 10 7 3 2 1 -3
0 10 10 10 10 10 10 10
0 7 17 24 27 29 30 27
0 70 100 70 30 20 10 -30
0 20 20 20 20 20 20 20

• How would this change if the demand for the good
  increased significantly?
• Price of the good would increase.
• Value of each worker would increase.

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Use the following data
Wage 20
Price 100
Total Product (Output)
Additional Revenue per worker
Marginal Product (MP)
Units of Labor
Product Price
0 1 2 3 4 5 6 7
- 7 10 7 3 2 1 -3
0 100 100 100 100 100 100 100
0 7 17 24 27 29 30 27
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Use the following data
Wage 20
Price 100
Total Product (Output)
Additional Revenue per worker
Marginal Product (MP)
Units of Labor
Product Price
0 1 2 3 4 5 6 7
- 7 10 7 3 2 1 -3
0 100 100 100 100 100 100 100
0 7 17 24 27 29 30 27
0 700 1000 700 300 200 100 -300
Each worker is worth more!! THIS IS DERIVED
DEMAND.
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Use the following data
Wage 20
Price 10
Total Product (Output)
Additional Revenue per worker
Additional Cost per worker
Marginal Product (MP)
Units of Labor
Product Price
0 1 2 3 4 5 6 7
- 7 10 7 3 2 1 -3
0 10 10 10 10 10 10 10
0 7 17 24 27 29 30 27
0 70 100 70 30 20 10 -30
0 20 20 20 20 20 20 20

• How would this change if the productivity of each
  worker increased?
• Marginal Product would increase.
• Value of each worker would increase.

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Use the following data
Wage 20
Price 10
Total Product (Output)
Additional Revenue per worker
Marginal Product (MP)
Units of Labor
Product Price
0 1 2 3 4 5 6 7
- 70 100 70 30 20 10 -30
0 10 10 10 10 10 10 10
0 70 170 240 270 290 300 270
0 700 1000 700 300 200 100 -300
Each worker is worth more! More demand for the
resource.
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3 Shifters of Resource Demand

• Identify the Resource and Shifter (ceteris
  paribus)
• Increase in demand for microprocessors leads to
  a(n) ________ in the demand for processor
  assemblers.
• Increase in the price for plastic piping causes
  the demand for copper piping to _________.
• Increase in demand for small homes (compared to
  big homes) leads to a(n) _________ the demand for
  lumber.
• For shipping companies, __________ in price of
  trains leads to decrease in demand for trucks.
• Decrease in price of sugar leads to a(n)
  __________ in the demand for aluminum for soda
  producers.
• Substantial increase in education and training
  leads to an ___________ in demand for skilled
  labor.

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3 Shifters of Resource Demand

• Identify the Resource and Shifter (ceteris
  paribus)
• Increase in demand for microprocessors leads to
  a(n) ________ in the demand for processor
  assemblers.
• Increase in the price for plastic piping causes
  the demand for copper piping to _________.
• Increase in demand for small homes (compared to
  big homes) leads to a(n) _________ the demand for
  lumber.
• For shipping companies, __________ in price of
  trains leads to decrease in demand for trucks.
• Decrease in price of sugar leads to a(n)
  __________ in the demand for aluminum for soda
  producers.
• Substantial increase in education and training
  leads to an ___________ in demand for skilled
  labor.

increase
increase
decrease
decrease
increase
increase
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• Resource Supply Shifters
• Supply Shifters for Labor
• Number of qualified workers
• Education, training, abilities required
• Government regulation/licensing
• Ex What if waiters had to obtain a license to
  serve food?
• 3. Personal values regarding leisure time and
  societal roles.
• Ex Why did the US Labor supply increase during
  WWII?

Why do some occupations get paid more than
others?
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With your partner... Use supply and demand
analysis to explain why surgeons earn an average
salary of 137,050 and gardeners earn 13,560.
Supply and Demand For Surgeons
Supply and Demand For Gardeners
SL
Wage Rate
Wage Rate
SL
DL
DL
Quantity of Workers
Quantity of Workers
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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 that equilibrium wages
• Wage Discrimination-
• Some people get paid differently for doing the
  same job based on race or gender (Very illegal!).

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Glass Ceilings