1. (aka: The Factor Market or Input Market)
Unit 5 Resource Market
(aka: The Factor Market or Input Market)

2. Review Give an example of Derived Demand. Define MRP.
Explain the difference between MRP and MR.
Why does the MRP fall as more workers are hired?
Identify the two ways to calculate MRP.
Define MRC.
Explain the difference between MRC and MC.
How does a firm decide how many workers to hire?
Name two birds with echolocation.

3. 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

4. Does having an education mean that you will automatically have a higher income?

5. “You’ve got to learn computers!”
Real Life Application
Top 5 Fastest Growing Jobs ( )
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 & NOW WHAT?
“You’ve got to learn computers!”

6. Real Life Application
Ten most profitable majors and the average starting salary (Aug, 2013):
Petroleum engineering  $98,000
Chemical engineering  $67,500
Nuclear engineering  $66,800
Electrical engineering  $63,400
Computer engineering  $62,700
Aerospace engineering  $62,500
Mechanical engineering  $60,100
Materials science & engineering  $60,100
Industrial engineering   $59,900
Computer science  $58,400

7. Video: Did You Know?

8. MRP (SL) = MRC (DL)

9. Marginal Revenue Product
Last Class Activity
Wage = $20 / Price = $10
Marginal Revenue Product
(MRP)
Total
Product
(Output)
Marginal
Product
(MP)
Units of
Labor
Product
Price 1 2 3 4 5 6 7 7 17 24 27 29 30 - 7 10 3 2 1 -3 10 70
100 30 20 10
-30
Shows how many workers a firm is willing and able to hire at different wages. 9

10. Last Class Activity Wage = $20 / Price = $10
Marginal Revenue Product
(MRP)
Total
Product
(Output)
Marginal
Product
(MP)
Units of
Labor
Product
Price 1 2 3 4 5 6 7 7 17 24 27 29 30 - 7 10 3 2 1 -3 10 70
100 30 20 10
-30
Demand for this resource
Plotting the MRP/Demand curve 10

11. Drawing the Demand Curve for Resources11

12. Demand=MRP Wage Why is it downward sloping?QL
$100 80 60 40 20
Dl=MRP
Quantity of Workers
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
This model applies to LAND, LABOR, & CAPITAL

13. What happens if DEMAND for the product INCREASES?
Wage QL
$100 80 60 40 20
Dl=MRP
Quantity of Workers
Dl’=MRP’
MRP increases causing demand to shift right
In other words,
MRP represents the value of each worker. 13

14. Shifting the Demand Curve for Resources14

15. Resource Demand Shifters
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 Related 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 of nails if the price of lumber increases significantly?

16. 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. 16

17. 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 17

18. 3 Shifters of Resource Demand
Practice
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 houses (comparing to big houses) 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 teachers and trainers.
increase
increase
decrease
decrease
increase
increase

19. Use the following data:
Price = $10
Wage = $20
Total
Product
(Output)
Marginal
Product
(MP)
Marginal Revenue Product
Marginal Resource Cost
Units of
Labor
Product
Price 1 2 3 4 7 17 24 27 - 7 10 3 10 70
100 30 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. 19

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

21. How would change if the PRODUCTIVITY of each worker INCREASED?
Use the following data:
Price = $10
Wage = $20
Total
Product
(Output)
Marginal
Product
(MP)
Marginal Revenue Product
Marginal Resource Cost
Units of
Labor
Product
Price 1 2 3 4 7 17 24 27 - 7 10 3 10 70
100 30 20
How would change if the PRODUCTIVITY of each worker INCREASED?
Marginal Product would increase.
Value of each worker would increase. 21

22. Use the following data:
Price = $10
Wage = $20
Total
Product
(Output)
Marginal
Product
(MP)
Marginal Revenue Product
Units of
Labor
Product
Price 1 2 3 4 5 6 7
00
770
17170
24240
27270
29290
30300 - 70
100 30 20 10
-30 10
700
1000
300
200
100
-300
Each worker is worth more!
More demand for resource. 22

23. Shifting the Supply Curve for Resources23

24. Resource Supply Shifters
Supply Shifters for Labor
Number of qualified workers
Education, training, & abilities required
Government regulation/licensing
What if waiters had to obtain a license to serve food?
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?

25. Supply and Demand For Surgeons Supply and Demand For Gardeners
Use supply and demand analysis to explain why
surgeons earn an average salary of $137,050 &
gardeners earn an average salary of $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

26. 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)

27. “Glass Ceilings”

28. The Effects of Unions in Competitive Labor Market1.
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.
Wage QL SL DL
SL1 QL
Wage SL DL
DL1 QL
Wage SL DL
DL1 QL
Wage SL DL
DL1 QL
Wage SL DL QL
Wage SL DL
SL1

29. The Effects of Unions in Competitive Labor Market1.
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.
Wage QL SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL

30. The Effects of Unions in Competitive Labor Market1.
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.
Wage QL SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL

31. The Effects of Unions in Competitive Labor Market1.
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.
Wage QL SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL

32. The Effects of Unions in Competitive Labor Market1.
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.
Wage QL SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL