Unit 5: The Resource Market Copyright ACDC Leadership 2015 1

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? Copyright ACDC Leadership 2015

Monopsony Copyright ACDC Leadership 2015

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 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 Copyright ACDC Leadership 2015 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 Copyright ACDC Leadership 2015

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 8.00 6  13 9.00 7  15 10.00 8  17 Copyright ACDC Leadership 2015

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 Copyright ACDC Leadership 2015

Identify the wage and quantity of labor that would be hired by this monopsony MRC $15 Supply of Labor $12 $10 Wage=$9 Quantity= Q2 $9 MRP Q1 Q2 Q3 Quantity Copyright ACDC Leadership 2015

Monopoly vs. Monopsony Wage MRC SL WE DL=MRP QL Price MC PE D MR Q QE Copyright ACDC Leadership 2015 QE

Goal is to increasing wages and benefits Labor Unions Goal is to increasing wages and benefits Copyright ACDC Leadership 2015

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 Copyright ACDC Leadership 2015