Unit 5: The Resource Market 1

Use the concept of derived demand to explain this cartoon What about SUPPLY?

Shifter Review 3 Resource Demand Shifters (Based on MRP) Demand (price) of the product Productivity of the resource Price of related resources 3 Resource Supply Shifters 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 and traditions regarding leisure time and societal rolls. Ex: Why did the US Labor supply increase during WWII?

Imperfect Competition: Monopsony Resource Markets Perfect Competition Monopsony Imperfect Competition: Monopsony Characteristics: One firm hiring workers The firm is large enough to manipulate the market Workers are relatively immobile (no alternatives) Firm is wage maker To hire additional workers the firm must increase the wage. Examples: Central American Sweat Shops Midwest small town with a large Car Plant NCAA 4

Marginal Resource Cost Assume that this firm CAN’T wage discriminate and must pay each worker the same wage. Acme Coal Mining Co. Wage rate (per hour) Number of Workers Marginal Resource Cost $4.00   4.50 1 5.00 2 5.50 3 6.00 4 7.00 5 8.00 6 9.00 7 10.00 8 4.50 5.50 6.50 7.50 4.50/1 = $4.50 10.00 – 4.50= $5.50 16.50 – 10.00= $6.50 24.00 – 16.50= $7.50

Marginal Resource Cost Assume that this firm CAN’T wage discriminate and must pay each worker the same wage. MRC doesn’t equal wage Acme Coal Mining Co. Wage rate (per hour) Number of Workers Marginal Resource Cost $4.00  - 4.50 1  $4.50 5.00 2  5.50 5.50 3  6.50 6.00 4  7.50 7.00 5 11.00 8.00 6  13.00 9.00 7  15.00 10.00 8  17.00

The Firm CAN’T Wage Discriminate. WHY? The Firm CAN’T Wage Discriminate. The only way it can hire a 2nd worker is to increase the wage and it must pay the 1st worker this increased wage, too!

You don’t believe me that the firm has to increase wages in order to hire more workers? It’s in the graph! SL W3 3 2 W2 1 DL=MRP W1 Quantity

If the firm can’t wage discriminate, where is MRC? Monopsony If the firm can’t wage discriminate, where is MRC? MRC Wage SL WE DL=MRP QE

Goal is to increase wages and benefits Labor Unions Goal is to increase wages and benefits

How do Unions Increase Wages? Convince Consumers to buy only Union Products Ex: Advertising the quality of union/domestic products Lobbying government officials to increase demand Ex: Teacher’s Union petitions governor to increase spending. Increase the price of substitute resources Ex: Unions support increases in minimum wage so employers are less likely to seek non-union workers

Labor Markets

Labor Markets and Globalization

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Why is Globalization Happening? What types of jobs are outsourced? 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. What types of jobs are outsourced? For many years it was only unskilled jobs, but now other skilled jobs are sent overseas.

Advantages and 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

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