Presentation on theme: "Microeconomics Unit 5 The Resource Market. Topic 1: Intro to the Resource Market Product Market Resource Market."— Presentation transcript:
Microeconomics Unit 5 The Resource Market
Topic 1: Intro to the Resource Market Product Market Resource Market
PRODUCT market Looks at total production Households DEMAND products Firms SUPPLY products
Resource Market Looks at things that go INTO making products (land, labor, capital, entrepreneurship) Households SUPPLY resources Firms DEMAND resources
Derived Demand: The demand for the resources that go into making a product. An increase in the demand for a product will increase the demand for the resources (land, labor, capital) used to produce it Resource market based on: Derived Demand
Derived demand for cars???
Topic 2: Market Demand for Labor FIRMS demand labor. DL Quantity of Workers Wage As wage falls, Qd increases. As wage increases, Qd falls. 7
Shifts in the Market Demand for Labor Increase = demand shifts to right Decrease = demand shifts to the left D D1
Reasons why demand for Labor will shift: 1.Change in price of product P increases = increase in the demand for resource used to produce product; price decreases = decrease for the demand for the resource used to produce product 2.Change in productivity (increase in productivity makes workers more valuable = increase in demand) 3.Change in price of other resources 4. Change in the demand for the product
Practice: Will the demand for ROOFERS shift??? If so, what direction??? 1. There is an increase in the price of houses 2. There is a decrease in the wages of roofers 3. There is a decrease in the demand for houses 4. There is an increase in the productivity of roofers
Quantity of Workers Wage As wage increases, Qs increases. As wage decreases, Qs decreases. Labor Supply 11 Topic 3: Market supply of Labor Households supply labor.
Shifts in Market Supply of Labor Increase = supply of labor shifts to the right Decrease = supply of labor shifts to the left s 1 S
Reasons why the supply of labor will shift 1.Change in Number of workers 2.Change in Government regulation/licensing 3. Change in worker attitudes Leisure time vs. work
Practice: Will the supply of teachers shift??? If so, which direction??? 1. The government passes a law requiring all teachers to obtain a PH.D 2. More teachers reach retirement age and retire 3. There is a decrease in the wages paid to teachers
Topic 4: The labor market SLSL DLDL Wage Q Q of workers Change in wages; just a movement ALONG the curves!!!! NOT a shift!
America’s Highest Paying Jobs 2011 With data recently released by the Bureau of Labor Statistics, BLS, CNBC.com took a look at the most highly-compensated occupations in the country, based upon BLS job definitions.
1. Doctors/surgeons 2. CEO 3. Dentists 4. Lawyers 5. Petroleum engineer 6. Architectural engineer 7. Computer and information systems manager 8. Marketing manager 9. Financial manager 10. Pilot
What are the best and worst jobs??? Criteria based on: Physical Demands, Work Environment, Income, Outlook (Job Growth), and Stress.
Top 10 best and worst jobs 2011 Best Jobs Software engineer. Mathematician. Actuary. Statistician. Computer systems analyst. Meteorologist. Biologist. Audiologist. Dental hygienist Worst Jobs Roustabout. Ironworker. Lumberjack. Roofer. Taxi driver. Emergency medical technician. Welder. Meter reader. Construction worker
Most Dangerous Jobs 1. Bomb Squad Technician 2. Armed Forces 3. Miner 4. Police Officer 5. Alaskan Crab Fishing 6. Firefighter * career builder survey
Top 10 scary, creepy and just plain disturbing jobs 1. Field epidemiologist 2. Embalmer 3 pest control specialist 4. Slaughterer 5. Arachnologist 6. Road kill remover specialist 7.Crime scene cleaner 8.Reptologist 9.Septic tank services 10. Forensic entomologist
Occupations that you think are highly respected: Why are some jobs more highly respected than others?
Most admired jobs * Forbes 1. Firefighter 2. Doctor 3. Nurse 4. Scientist 5. Teacher 6. Military officer 7. Police officer 8. Clergymen 9. Farmer 10. Engineer
Backward bending supply of labor curve
Reason for backward bending S of labor The Substitution effect states that a higher wage makes work more attractive than leisure. Therefore, supply increases. The income effect states that a higher wage means workers can achieve a target income by working less hours. Therefore, because it is easier to get enough money they work less. When your wage is low, the substitution effect dominates. As wages increase, the income effect starts to dominate.
S Wage Q Labor D Topic 5: Minimum Wage $15 $8 $6 The government wants to “help” workers because the equilibrium wage is too low
S Wage Q Labor D Fast Food Cooks Government sets up a “WAGE FLOOR.” Where? 28 $15 $8 $
S Wage Q Labor D Minimum Wage Above Equilibrium! 29 $15 $8 $
S Wage Q Labor D What’s the result? Q demanded falls. Q supplied increases. 30 $15 $8 $ Surplus of workers (Unemployment) Minimum Wage
Topic 6: Labor Decisions of the Individual Firm
The firm’s demand for labor = MARGINAL REVENUE PRODUCT (MRP) D=MRP
Marginal Revenue Product (MRP) Additional revenue of using one more resource The value of the resource to the firm; shows how much each resource is “worth” MRP = marginal product X price of item
Complete the table below (price of product is $2.00) # of workersTotal productMarginal productMarginal revenue product
Complete the table below (price of product is $2.00) # of workersTotal productMarginal productMarginal revenue product 110 $ $ $ $10 Stages of return???
The firm’s supply of labor = MARGINAL FACTOR COST (MFC)
Marginal FACTOR Cost (MFC) Additional cost of using one more resource
Complete the table assuming wage is $8.00 # of workersTotal costMarginal FACTOR cost
Complete the table assuming the wage is $8.00 # of workersTotal costMarginal FACTOR cost 000 1$8 2$16$8 3$24$8 4$32$8
“How much are you worth? “ 20/20 video
In the resource market: firms compare the MFC to MRP to determine resource usage
Maximizing Profit in the labor market MRP>MFC Hire MRP
What should the firm do??? Hire more, less or stay put??? 1.MRP= $12; MFC=$6 2.MRP=$10; MFC = $10 3. MRP = $5; MFC = $10 4.MRP = $45; MFC = $15 5. MRP = $20; MFC = $40
Complete the following chart. Assume the wage is $20 and the price of the product is $10 # of workersTotal product Marginal product Marginal revenue product Total costMarginal FACTOR cost
Complete the following chart. Assume the wage is $20 and the price of the product is $10 # of workersTotal product Marginal product Marginal revenue product Total costMarginal FACTOR cost $70$ $ $ $ $ $ $
Which worker produced increasing, decreasing and negative returns? # of workersTotal products Marginal product Marginal revenue product Total costMarginal FACTOR cost $70$ $ $ $ $ $ $
How many workers should this firm hire??? WHY What is the profit at this number??? # of workersTotal product Marginal product Marginal revenue product Total costMarginal FACTOR cost $70$ $ $ $ $ $ $
Topic 7: Economic models of the labor market Perfect competition Monopsony Regardless of type of firm, all Firms will hire where MRP=MRC
Topic 8: Perfectly competitive labor market 1. many small firms competing to hire a specific type of labor 2. many workers with identical skills 3. wage is set by the market 4. workers are wage takers - firms can hire as many workers as they want at a wage set by the industry 5. MFC=W=S
SLSL DLDL Wage Q Q IndustryFirm Q W Q D L =MRP MFC=W=S Use side-by-side graph showing labor market and perfectly competitive firm
There is a decrease in the supply of workers. Show how this impacts the below graphs
What happens to wages??? Will the firm hire more or less workers??? Q1 MFC=W=S1 MFC=W=S
SLSL DLDL Wage Q Q IndustryFirm QEQE WEWE QeQe D L =MRP MFC=W=S What happens to the wage and quantity in the market and firm if new workers enter the industry? S L1 W1W1 Q1Q1 MFC=W=S Q1Q1
Topic 9: Monopsony Labor market 1. only one employer in the market 2. firm is a wage maker 3. MFC does NOT equal wage/Supply Why???must pay higher wages to attract more workers
Monopsony Must pay higher wage to attract more workers # of workersWageTotal costMarginal FACTOR cost 1$5 2$6 3$7 4$8 5$9 6$10
Monopsony Must pay higher wage to attract more workers # of workersWageTotal costMarginal FACTOR cost 1$5 2$6$12$7 3 $21$9 4$8$32$11 5$9$45$13 6$10$60$15 MRC increases as firm hires more workers
W=S L Wage QEQE WEWE D L =MRP MFC Monopsony Hires fewer workers and pays lower wage than perfectly competitive market Q determined by MRP=MFC; wage determined by Supply
Topic 10:Combining Resources (land, labor and capital) If using multiple resources, a firm should hire the resource that brings them the most value; “bang for the buck”
To find “bang for buck” find the MP/W
1. The cost to hire a worker is $10 at an MP of 20. What is the worker’s MP/wage? 2. The cost to rent a machine is $100 at an MP of 300. What is the machine’s MP/wage?
LEAST COST RULE in labor market (if using multiple resources) MP (L) = MP (c ) W(L) W ( c) If the two resources are equal in their value, firm should stay put. If not equal, firm should hire more of the valuable resource and less of the least valuable resource
Practice The price to hire one more baker is $20 at an MP of 40. The price to hire one more waitress is $10 at an MP of 30. If this is a profit maximizing firm, what should the firm do???
Practice What should the firm do??? 1. MP/W labor is 20, MP/W of machine is 30? 2. MP/W of labor is 10, MP/W of machine is 10? 3. MP/W of labor is 5, MP/W of machine is 2? 4. MP/W of labor is 10, MP/W of machine is 13? 5. MP/W of labor is 3, MP/W of machine is 3?
Budget constraint and combination of resources
# MP (Robots) MP/w MP (Workers) MP/w $10 $5
If you only have $35, what is the best combination or resources? # MP (Robots) MP/w MP (Workers) MP/w $10 $5
If you only have $35, the best combination is 2 robots and 3 workers MP/P (robots) = MP/P(worker) # MP (Robots) MP/w MP (Workers) MP/w $10$5
Topic 11: Labor Markets and Globalization
Why is Globalization Happening? Globalization is the result of firms seeking lowest costs. Firms are seeking greater profits. Parts are made in China because labor in significantly cheaper. What is Outsourcing? Outsourcing is when firms send jobs overseas.
Advantages and Disadvantages Disadvantages Increases U.S. unemployment Less US tax revenue generated from workers and corporations means less public benefits Foreign workers don’t receive same protections as US workers Advantages Lowers prices for nearly all goods and services Decreases world unemployment Improves quality of life and decreases poverty in less developed countries