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.
Ex: Why did the US Labor supply increase during WWII?

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 (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

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
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

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
11.00
8.00 6
 13.00
9.00 7
 15.00
10.00 8
 17.00

7. 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!

8. 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

9. 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

10. Goal is to increase wages and benefits
Labor Unions
Goal is to increase 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. Check your Tags

15. 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.

17. 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

19. Do you agree?