1. Unit 5: The Resource Market1

2. Review Give an example of Derived Demand. Define MRP.
Explain the difference between MRP and MR.
Why does the MRP fall as more workers are hired?
Identify the two ways to calculate MRP.
Define MRC.
Explain the difference between MRC and MC.
How does a firm decide how many workers to hire?
Name 10 Colleges

3. Why do people with only high school degrees make less money on average?
Employers assume they have low productivity and will generate less additional revenue. 3

4. Does having an education mean that you will automatically have a higher income?

5. “You’ve got to learn computers!”
Real Life Application
Top 5 Fastest Growing Jobs ( )
Computer Software Engineers, Applications
Computer Support Specialists
Computer Software Engineers, Systems
Computer Systems Administrators
Data Communications Analyst
Top 5 Fastest Declining Jobs
Railroad Switch Operators
Shoe Machine Operators
Telephone Operators
Radio Mechanics
Loan Interviewers
WHY?
“You’ve got to learn computers!”

6. Real Life Application

7. Video: Did You Know?

8. The MRP of a resource equals the Demand.

9. Drawing the Demand Curve for Resources9

10. Yesterday's Activity 1 2 3 4 5 6 7 7 17 24 27 29 30 - 7 10 3 2 1 -3 10
Price = $10
Wage = $20
Total
Product
(Output)
Marginal
Product
(MP)
Units of
Labor
Product
Price
MRP 1 2 3 4 5 6 7 7 17 24 27 29 30 - 7 10 3 2 1 -3 10 70
100 30 20 10
-30
Shows how many workers a firm is willing and able to hire at different wages.

11. Plotting the MRP/Demand curve
Use the following data:
Price = $10
Wage = $20
Total
Product
(Output)
Marginal
Product
(MP)
Units of
Labor
Product
Price
MRP 1 2 3 4 5 6 7 7 17 24 27 29 30 - 7 10 3 2 1 -3 10 70
100 30 20 10
-30
Demand for this resource
Plotting the MRP/Demand curve

12. Demand=MRP Why is it downward sloping?
Because of the law of diminishing marginal returns
Wage Rate
$100 80 60 40 20
Each additional resource is less productive and therefore is worth less than the previous one
D=MRP Q
Quantity of Workers

13. This model applies to land, labor, and capital
Demand=MRP
Wage Rate
This model applies to land, labor, and capital
Notice the inverse relationship between wage and quantity of resources demand
$100 80 60 40 20
D=MRP Q
Quantity of Workers

14. What happens if demand for the product increases?
Wage Rate
$100 80 60 40 20
MRP increases causing demand to shift right
D1=MRP1
D=MRP Q
Quantity of Workers 14

15. 3 Shifters of Resource Demand
1.) Changes in the Demand for the Product
Price increase of the product increases MRP and demand for the resource.
2.) Changes in Productivity
Technological Advances increase Marginal Product and therefore MRP/Demand.
3.) Changes in Price of Other Resources
Substitute Resources
Ex: What happens to the demand for assembly line workers if price of robots falls?
Complementary Resources
Ex: What happens to the demand nails if the price of lumber increases significantly?

16. Drawing the Demand Curve for Resources16

17. Use the following data:
Price = $10
Wage = $20
Total
Product
(Output)
Marginal
Product
(MP)
Additional
Revenue
per worker
Additional
Cost
per worker
Units of
Labor
Product
Price 1 2 3 4 5 6 7 7 17 24 27 29 30 - 7 10 3 2 1 -3 10 70
100 30 20 10
-30 20
How would this change if the demand for the good increased significantly?
Price of the good would increase.
Value of each worker would increase. 17

18. Use the following data:
Price = $100
Wage = $20
Total
Product
(Output)
Marginal
Product
(MP)
Additional
Revenue
per worker
Units of
Labor
Product
Price 1 2 3 4 5 6 7 7 17 24 27 29 30 - 7 10 3 2 1 -3
100 18

19. Use the following data: Each worker is worth more!!
Price = $100
Wage = $20
Total
Product
(Output)
Marginal
Product
(MP)
Additional
Revenue
per worker
Units of
Labor
Product
Price 1 2 3 4 5 6 7 7 17 24 27 29 30 - 7 10 3 2 1 -3
100
700
1000
300
200
100
-300
Each worker is worth more!!
THIS IS
DERIVED DEMAND. 19

20. How would this change if the productivity of each worker increased?
Use the following data:
Price = $10
Wage = $20
Total
Product
(Output)
Marginal
Product
(MP)
Additional
Revenue
per worker
Additional
Cost
per worker
Units of
Labor
Product
Price 1 2 3 4 5 6 7 7 17 24 27 29 30 - 7 10 3 2 1 -3 10 70
100 30 20 10
-30 20
How would this change if the productivity of each worker increased?
Marginal Product would increase.
Value of each worker would increase. 20

21. Use the following data:
Price = $10
Wage = $20
Total
Product
(Output)
Marginal
Product
(MP)
Additional
Revenue
per worker
Units of
Labor
Product
Price 1 2 3 4 5 6 7 70
170
240
270
290
300 - 70
100 30 20 10
-30 10
700
1000
300
200
100
-300
Each worker is worth more!
More demand for the resource. 21

22. 3 Shifters of Resource Demand
Identify the Resource and Shifter (ceteris paribus):
Increase in demand for microprocessors leads to a(n) ________ in the demand for processor assemblers.
Increase in the price for plastic piping causes the demand for copper piping to _________.
Increase in demand for small homes (compared to big homes) leads to a(n) _________ the demand for lumber.
For shipping companies, __________ in price of trains leads to decrease in demand for trucks.
Decrease in price of sugar leads to a(n) __________ in the demand for aluminum for soda producers.
Substantial increase in education and training leads to an ___________ in demand for skilled labor.

23. 3 Shifters of Resource Demand
Identify the Resource and Shifter (ceteris paribus):
Increase in demand for microprocessors leads to a(n) ________ in the demand for processor assemblers.
Increase in the price for plastic piping causes the demand for copper piping to _________.
Increase in demand for small homes (compared to big homes) leads to a(n) _________ the demand for lumber.
For shipping companies, __________ in price of trains leads to decrease in demand for trucks.
Decrease in price of sugar leads to a(n) __________ in the demand for aluminum for soda producers.
Substantial increase in education and training leads to an ___________ in demand for skilled labor.
increase
increase
decrease
decrease
increase
increase

24. Resource Supply Shifters
Supply Shifters for Labor
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 regarding leisure time and societal roles.
Ex: Why did the US Labor supply increase during WWII?
Why do some occupations get paid more than others?

25. Supply and Demand For Surgeons Supply and Demand For Gardeners
With your partner...
Use supply and demand analysis to explain why surgeons earn an average salary of $137,050 and gardeners earn $13,560.
Supply and Demand For Surgeons
Supply and Demand For Gardeners SL
Wage Rate
Wage Rate SL DL DL
Quantity of Workers
Quantity of Workers

26. What are other reasons for differences in wage?
Labor Market Imperfections-
Insufficient/misleading job information-
This prevents workers from seeking better employment.
Geographical Immobility-
Many people are reluctant or too poor to move so they accept a lower wage
Unions (Market Power)
Collective bargaining and threats to strike often lead to higher than equilibrium wages
Wage Discrimination-
Some people get paid differently for doing the same job based on race or gender (Very illegal!).

27. From our Textbook Compensating differentials Differences in talent
Differences in the quality of human capital
Idea of “efficiency wage”
Marginal productivity theory of income distribution

28. Marginal Productivity Theory of Income Distribution
Idea that wages are in equilibrium based on the marginal resource cost of the “last” worker hired
Wages are in equilibrium when MRPL = MRCL
But there are problems with this argument

29. Problems with the Marginal Productivity Theory of Income Distribution
There are income gaps between groups of people who really should be paid the same
Do the wage differences really reflect differences in marginal productivity?
Theory gives a moral justification for the distribution of income. What percentage of our national income does the top 1% control?

30. “Glass Ceilings”

31. 2010 Practice FRQ
3 apples and 2 oranges 31