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Unit 5: The Resource Market

Unit 5: The Resource Market. (aka: The Factor Market or Input Market). 1. Review Who demands in the Resource Market? Who supplies in the Resource Market? Define Derived Demand The demand for resources is determined (derived) by the products they help produce.

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Unit 5: The Resource Market

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  1. Unit 5: The Resource Market (aka: The Factor Market or Input Market) 1

  2. Review • Who demands in the Resource Market? • Who supplies in the Resource Market? • Define Derived Demand • The demand for resources is determined (derived) by the products they help produce. • 4. Identify the Shifters of Resource Demand • Derived Demand • Productivity of the Resources • Price of related resources

  3. Use side-by-side graphs to draw a perfectly competitive labor market and firm hiring workers

  4. Wage is set by the market Demand/MRP falls SL Wage Wage SL=MRC WE DL=MRP DL Q Qe Q QE Industry Firm

  5. What happens to the wage and quantity in the market and firm if new workers enter the industry? SL Wage Wage SL=MRC WE DL=MRP DL Q Qe Q QE Industry Firm

  6. What happens to the wage and quantity in the market and firm if new workers enter the industry? SL Wage Wage SL1 SL=MRC WE W1 SL1=MRC1 DL=MRP DL Q Qe Q1 Q QE Q1 Industry Firm

  7. Minimum Wage Assume the government was interest in increasing the federal minimum wage to $15 an hour Do you support this new law? Why or why not

  8. Fast Food Cooks Wage S $15 $8 $6 The government wants to “help” workers because the equilibrium wage is too low D 5 6 7 8 9 10 11 12 Q Labor

  9. Fast Food Cooks Wage S $15 $8 $6 Government sets up a “WAGE FLOOR.” Where? D 5 6 7 8 9 10 11 12 Q Labor

  10. Minimum Wage Wage S $15 $8 $6 Above Equilibrium! D 5 6 7 8 9 10 11 12 Q Labor

  11. Minimum Wage Wage Surplus of workers (Unemployment) S $15 $8 $6 What’s the result? Q demanded falls. Q supplied increases. D 5 6 7 8 9 10 11 12 Q Labor

  12. Is increasing minimum wage good or bad? GOOD IDEA- We don’t want poor people living in the street, so we should make sure they have enough to live on. BAD IDEA- Increasing minimum wage too much leads to more unemployment and higher prices.

  13. Minimum Wage Worksheet

  14. Combining Resources Up to this point we have analyzed the use of only one resource. What about when a firm wants to combine different resources?

  15. Least Cost Rule How much additional output does each resource generate per dollar spent? $10 $5 If you only have $35, what combination of robots and workers will maximize output?

  16. Least Cost Rule MPx = MPy $10 $5 Px Py Resource x Resource y If you only have $35, the best combination is 2 robots and 3 workers

  17. Profit Maximizing Rule for a Combing Resources 1 MRPx = MRPy = MRCx MRCy This means that the firm is hiring where MRP = MRC for each resource x and y

  18. Practice: What should the firm do – hire more, hire less, or stay put? 1. MRPL = $15; PL = $6; MRPC = $10; PC = $10 2. MRPL = $5; PL = $10; MRPC = $10; PC = $15 3. MRPL = $25; PL = $20; MRPC = $15; PC = $15 4. MRPL = $12; PL = $12; MRPC = $50; PC = $40 5. MRPL = $20; PL = $15; MRPC = $100; PC =$40 MORE STAY PUT LESS LESS MORE STAY PUT STAY PUT MORE MORE MORE

  19. 2010 Practice FRQ 19

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