1. Unit 5: The Resource Market1

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

3. 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.

4. 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 wages
Examples:
Central American Sweat Shops
Midwest small town with a large Car Plant 4

5. 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

6. 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

7. 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

8. 3. Woodland is a small town in which everyone works for TreeMart, the local lumber company. TreeMart is a monopsonist in the labor market and a perfect competitor in the lumber market. In the short run, labor is the only variable input. The labor market for TreeMart is given in the graph above. (a) Identify the profit-maximizing quantity of labor for TreeMart. (b) Identify the wage rate TreeMart pays to hire the profit-maximizing quantity of labor. (c) Identify the quantity of labor hired in each of the following situations. (i) TreeMart operates in a competitive labor market. (ii) The government imposes a minimum wage of $12.5. Explain.

9. 2011 SCORING GUIDELINES (Form B)
AP® MICROECONOMICS
2011 SCORING GUIDELINES (Form B)
Question 3
5 points ( )
(a) 1 point: • One point is earned for identifying the profit-maximizing quantity of labor as 100 units.
(b) 1 point:
• One point is earned for identifying the wage rate TreeMart pays as $10.
(c) 3 points:
• One point is earned for identifying the quantity of labor in a competitive labor market as 200 units.
• One point is earned for identifying the quantity of labor, 150 units, given a minimum wage of $12.5.
• One point is earned for explaining that the MFC curve (or the supply curve for labor) becomes horizontal at the minimum wage up to a quantity of 150.

10. Goal is to increasing wages and benefits
Labor Unions
Goal is to increasing wages and benefits

11. 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

12. Labor Markets

13. Labor Markets and Globalization

14. 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 is 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.

16. 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

17. Video 1: Outsourcing Child Care Video 2: Stossel Outsourcing