Transcript The Demand for Resources

Unit 4: The
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. Name 10 Colleges
2
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.
3
Does having an education mean that you will
automatically have a higher income?
4
Real Life Application
Top 5 Fastest Growing Jobs (2000-2010)
1.
2.
3.
4.
5.
Computer Software Engineers, Applications
Computer Support Specialists
Computer Software Engineers, Systems
Computer Systems Administrators
Data Communications Analyst
Top 5 Fastest Declining Jobs
1.
2.
3.
4.
5.
Railroad Switch Operators
Shoe Machine Operators
Telephone Operators
Radio Mechanics
Loan Interviewers
WHY?
“You’ve got to learn
computers!”
5
Real Life Application
6
Video: Did You Know?
7
The MRP of a resource equals
the Demand.
8
Drawing the
Demand Curve for
Resources
9
Price = $10 Wage = $20
Yesterday's Activity
Units of
Labor
Total
Product
(Output)
0
1
2
3
4
5
6
7
0
7
17
24
27
29
30
27
Marginal
Product
Product
Price
(MP)
7
10
7
3
2
1
-3
0
10
10
10
10
10
10
10
MRP
0
70
100
70
30
20
10
-30
Shows how
many
workers a
firm is
willing and
able to hire
at different
wages.
10
Use the following data:
Units of
Labor
Total
Product
(Output)
0
1
2
3
4
5
6
7
0
7
17
24
27
29
30
27
Price = $10 Wage = $20
Marginal
Product
Product
Price
(MP)
7
10
7
3
2
1
-3
0
10
10
10
10
10
10
10
MRP
0
70
100
70
30
20
10
-30
Demand
for this
resource
Plotting the MRP/Demand curve
11
Demand=MRP
Why is it downward sloping?
Because of the law of
diminishing marginal
returns
Each additional resource
is less productive and
therefore is worth less
than the previous one
Wage Rate
$100
80
60
40
20
D=MRP
1
2
3
4
5
6
7
8
Q
Quantity of Workers
12
Demand=MRP
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
D=MRP
1
2
3
4
5
6
7
8
Q
Quantity of Workers
13
What happens if demand for the product
increases?
Wage Rate
$100
MRP increases causing
demand to shift right
80
60
40
D1=MRP1
20
D=MRP
1
2
3
4
5
6
7
8
Q
Quantity of Workers
14
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?
15
Drawing the
Demand Curve for
Resources
16
Use the following data:
Units of
Labor
Total
Product
(Output)
Price = $10 Wage = $20
Additional
Marginal
Product Revenue
Product
Price
per worker
(MP)
Additional
Cost
per worker
0
0
0
0
0
7
10
1
7
70
20
10
10
2
17
100
20
7
10
3
24
70
20
3
10
4
27
30
20
2 change
10 if the
5
29
20 demand
20
How
would
this
1
10
6
30
10
20
for the good increased significantly?
-3
10
71. Price27of the good
-30
20
would
increase.
2. Value of each worker would increase.
17
Use the following data:
Units of
Labor
Total
Product
(Output)
0
1
2
3
4
5
6
7
0
7
17
24
27
29
30
27
Price = $100 Wage = $20
Marginal
Product
Product
Price
(MP)
7
10
7
3
2
1
-3
Additional
Revenue
per worker
0
100
100
100
100
100
100
100
18
Use the following data:
Units of
Labor
Total
Product
(Output)
0
1
2
3
4
5
6
7
0
7
17
24
27
29
30
27
Price = $100 Wage = $20
Marginal
Product
Product
Price
(MP)
7
10
7
3
2
1
-3
0
100
100
100
100
100
100
100
Additional
Revenue
per worker
0
700
1000
700
300
200
100
-300
Each
worker is
worth
more!!
THIS IS
DERIVED
DEMAND.
19
Use the following data:
Units of
Labor
Total
Product
(Output)
Price = $10 Wage = $20
Additional
Marginal
Product Revenue
Product
Price
per worker
(MP)
Additional
Cost
per worker
0
0
0
0
0
7
10
1
7
70
20
10
10
2
17
100
20
7
10
3
24
70
20
3
10
4
27
30
20
2 this10change
5 How
29 would
20if the20
1
10
6
30
10 increased?
20
productivity of each worker
-3
10
27 Product
-30
20
1.7 Marginal
would
increase.
2. Value of each worker would increase.
20
Use the following data:
Units of
Labor
0
1
2
3
4
5
6
7
Total
Product
(Output)
0
70
170
240
270
290
300
270
Price = $10 Wage = $20
Marginal
Product
Product
Price
(MP)
70
100
70
30
20
10
-30
0
10
10
10
10
10
10
10
Additional
Revenue
per worker
0
700
1000
700
300
200
100
-300
Each
worker is
worth
more!
More
demand
for the
resource.
21
3 Shifters of Resource Demand
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 homes (compared to big
homes) 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 skilled labor.
22
3 Shifters of Resource Demand
Identify the Resource and Shifter (ceteris paribus):
1. Increase in demand for microprocessors leads to a(n)
________
increase in the demand for processor assemblers.
2. Increase in the price for plastic piping causes the
demand for copper piping to _________.
increase
3. Increase in demand for small homes (compared to big
decrease the demand for lumber.
homes) leads to a(n) _________
4. For shipping companies, __________
decrease in price of trains
leads to decrease in demand for trucks.
5. Decrease in price of sugar leads to a(n) __________
in
increase
the demand for aluminum for soda producers.
6. Substantial increase in education and training leads to
an ___________
increase in demand for skilled labor.
23
Resource Supply Shifters
Supply Shifters for Labor
1. Number of qualified workers
• Education, training, & abilities required
2. 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?
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
Quantity of Workers
SL
DL
DL
Quantity of Workers
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!).
“Glass Ceilings”