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The Demand for Resources

The Demand for Resources. Chapter 14. Significance of Resource Pricing. Money-income determination Resource allocation Cost minimization Ethical questions & policy issues. Derived Demand. The demand for resources is derived. It’s derived from products that they help produce.

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The Demand for Resources

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  1. The Demand for Resources Chapter 14

  2. Significance of Resource Pricing • Money-income determination • Resource allocation • Cost minimization • Ethical questions & policy issues

  3. Derived Demand • The demand for resources is derived. It’s derived from products that they help produce. • Resources don’t directly satisfy customer wants but do so indirectly through producing goods & services.

  4. Marginal Revenue Product (MRP) • Change in total revenue resulting from the use of each additional unit of resource. • Marginal resource cost- amount that each additional unit of a resource adds to the firm’s total cost.

  5. Marginal Revenue Product • Strength of demand for any resources depends on: • Productivity of the resource • Market value of the product it produces

  6. Marginal Product (MP) • Additional output resulting from each additional resource unit. • Eventually the law of diminishing returns set in.

  7. Resource Demand Schedule

  8. Rule for hiring resources (labor) • Keep hiring as long as it adds more revenue than cost. • MRP=MRC (Similar to PMP discussion)

  9. MRP as Resource Demand Schedule • In a purely competitive labor market, market supply & demand establish the wage rate. • Individual firms = “wage taker”

  10. Resource Demand under Imperfect Competition (Oligopoly, Monopoly, etc.) • Individual firm = “wage maker” • Produce less output than a purely competitive seller • By producing less, fewer resources are demanded

  11. Determinants of Resource Demand • Changes in product demand • Changes in productivity • Quantities of other resources • Technological progress • Quality of the variable resource

  12. Changes in the prices of other resources Substitute resources • Substitution effect • A firm will purchase more of a resource whose price has declined • Output effect • Output will increase when price of a resource declines Complementary resources

  13. Occupational Employment Trends • Service occupations along with technology and health care dominate the list. • Increase in women workers • Decline in union membership • More service jobs (safer) • More women workers (less likely to join unions)

  14. Income distribution • Income gets distributed according to contribution to society’s output. • Criticisms • Inequality • Market imperfections

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