1. Factor Markets Labor

2. Product market  In the product market, firms supply goods  Households demand those goods.

3. Factor Market  In the factor market, these roles are switched  Firms demand factors of production, like labor  Households supply the factors like labor.

4. Circular Flow  Our model of the circular flow of the economy will illustrate this change in roles.

5. Circular Flow

6. The Demand for Factors of Production  A firm’s demand for factors of production is “Derived Demand” because it is a direct result of the demand for the products the firm produces.  If no one buys the firm’s product, the firm doesn’t need many workers.

7. Definitions and Abbreviations  MRP = the book refers to this as the marginal revenue product.  I prefer the marginal revenue produced by an extra unit of labor  MRP = change in MR/ change in units of labor

8. Definitions and Abbreviations  MRC is marginal resource cost  MRC = change in TC / change in units of labor

9. And now….  More Graphs!

10. Labor Unions  Labor unions are organized groups of workers  The goals of a labor union are: Increase wages and benefits Increase job security Improve working conditions

11. How can a union achieve goals?  1. Increase demand for labor A. lobbying to decrease foreign competition B. make workers more productive C. work rules

12. More ways to achieve goals  2. Decrease the Supply of labor A. Exclusive union which limits (reduces) the number of skilled workers; plumbers, lawyers, doctors B. Inclusive unions include all the workers then use collective bargaining or strikes to force the firm to meet demands

13. Where does a wage increase come from?  1. From profits of firm  2. From consumers in the form of higher prices  3. From increases in productivity, lower worker turnover rate, more worker involvement