1. The Demand for Resources27
C H A P T E R
The Demand for Resources

2. Money Income Determination Resource Allocation Cost Minimization
SIGNIFICANCE OF
RESOURCE PRICING
Money Income Determination
Resource Allocation
Cost Minimization
Ethical Questions and Policy Issues

3. MARGINAL PRODUCTIVITY THEORY OF RESOURCE DEMAND
Resource Demand as a Derived Demand
Marginal Revenue Product (MRP)
Productivity
Marginal Product (MP)
Product Price
Marginal
Revenue
Product =
Change in Total Revenue
Unit change in Resource Quantity

4. MARGINAL PRODUCTIVITY THEORY OF RESOURCE DEMAND
Revenue
Cost =
Change in Total (Resource) Cost
Unit change in Resource Quantity
Rule for Employing Resources:
MRP = MRC

5. GLOBAL PERSPECTIVE Labor Demand and Allocation: Selected Nations
Percentage of Labor Force
Agriculture
Developing
Countries
Industry
Services
Industrially
Advanced
Countries
United
States
Source: International Labour Organization

6. MRP AS A DEMAND SCHEDULE
Pure Competition
Units of
Resource
Total
Product
(Output)
Marginal
product
(MP)
Price
Revenue
Product (MRP) ] $2
$ 0 ]
Consider the case of
resource demand under
Pure Competition Q P 14 12 10 8 6 4 2
Resource price
(wage rate)
Quantity of resource demanded

7. MRP AS A DEMAND SCHEDULE
Pure Competition
Total
Product
(Output)
Marginal
product
(MP)
Marginal
Revenue
Product (MRP)
Units of
Resource
Product
Price
Total
Revenue 1 7 ] $2 2
$ 0 14 ] 7
$ 14 ] ] ] ] ] ] ] ] ] ] P 14 12 10 8 6 4 2
Resource price
(wage rate) Q
Quantity of resource demanded

8. MRP AS A DEMAND SCHEDULE
Pure Competition
Total
Product
(Output)
Marginal
product
(MP)
Marginal
Revenue
Product (MRP)
Units of
Resource
Product
Price
Total
Revenue 1 2 7 13 ] $2 2
$ 0 14 26 ] 7 6
$ 14 12 ] ] ] ] ] ] ] ] ] ] P 14 12 10 8 6 4 2
Resource price
(wage rate) Q
Quantity of resource demanded

9. MRP AS A DEMAND SCHEDULE
Pure Competition
Total
Product
(Output)
Marginal
product
(MP)
Marginal
Revenue
Product (MRP)
Units of
Resource
Product
Price
Total
Revenue 1 2 3 7 13 18 ] $2 2
$ 0 14 26 36 ] 7 6 5
$ 14 12 10 ] ] ] ] ] ] ] ] ] ] P 14 12 10 8 6 4 2
Resource price
(wage rate) Q
Quantity of resource demanded

10. MRP AS A DEMAND SCHEDULE
Pure Competition
Total
Product
(Output)
Marginal
product
(MP)
Marginal
Revenue
Product (MRP)
Units of
Resource
Product
Price
Total
Revenue 1 2 3 4 5 6 7 7 13 18 22 25 27 28 ] $2 2
$ 0 14 26 36 44 50 54 56 ] 7 6 5 4 3 2 1
$ 14 12 10 8 6 4 2 ] ] ] ] ] ] ] ] ] ] P 14 12 10 8 6 4 2
The purely competitive
seller’s demand for
a resource
Resource price
(wage rate) Q
Quantity of resource demanded

11. MRP AS A DEMAND SCHEDULE
Pure Competition
Total
Product
(Output)
Marginal
product
(MP)
Marginal
Revenue
Product (MRP)
Units of
Resource
Product
Price
Total
Revenue 1 2 3 4 5 6 7 7 13 18 22 25 27 28 ] $2 2
$ 0 14 26 36 44 50 54 56 ] 7 6 5 4 3 2 1
$ 14 12 10 8 6 4 2
Now, consider the case
of resource demand under
Imperfect Competition ] ] ] ] ] ] ] ] ] ] P 14 12 10 8 6 4 2
The purely competitive
seller’s demand for
a resource
Resource price
(wage rate) Q
Quantity of resource demanded

12. MRP AS A DEMAND SCHEDULE
Imperfect Competition
Total
Product
(Output)
Marginal
product
(MP)
Marginal
Revenue
Product (MRP)
Units of
Resource
Product
Price
Total
Revenue 1 2 3 4 5 6 7 7 13 18 22 25 27 28 ]
$2.80
2.60
2.40
2.20
2.00
1.85
1.75
1.65
$ 0
18.20
31.20
39.60
44.00
46.25
47.25
46.20 ] 7 6 5 4 3 2 1
$ 18.20
13.00
8.40
4.40
2.25
1.00
-1.05 ] ] ] ] ] ] ] ] ] ] P 14 12 10 8 6 4 2
The imperfectly
Competitive seller’s
demand for a resource
Resource price
(wage rate) Q
Quantity of resource demanded

13. Changes in Product Demand Changes in Productivity
DETERMINANTS OF RESOURCE DEMAND
Changes in Product Demand
Changes in Productivity
Quantities of Other Resources
Technological Progress
Quality of the Variable Resource

14. Changes in the Prices of Other Resources Substitute Resources
DETERMINANTS OF RESOURCE DEMAND
Changes in the Prices of Other Resources
Substitute Resources
Substitution Effect
Output Effect
Net Effect
Complementary Resources
Occupational Employment Trends

15. Erd = Rate of MP Decline Ease of Resource Substitutability
ELASTICITY OF RESOURCE DEMAND
Erd =
Percentage change in resource price
Percentage change in resource quantity
Rate of MP Decline
Ease of Resource Substitutability
Elasticity of Product Demand
Ratio of Resource Cost to Total Cost Ratio

16. 1 OPTIMUM COMBINATION OF RESOURCES MRPL MRPC PL PC Least-Cost Rule
Least-Cost Combination of Resources
MP of Labor
MP of Capital
Price of Labor
Price of Capital
Profit-Maximizing Combination
MRPL PL
MRPC PC 1

17. MARGINAL PRODUCTIVITY THEORY OF INCOME DISTRIBUTION
Inequality
Market Imperfections
Chapter
Conclusions

18. KEY TERMS derived demand marginal product (MP)
marginal revenue product (MRP)
marginal resource cost (MRC)
MRP = MRC rule
substitution effect
output effect
elasticity of resource demand
least-cost combination of resources
profit-maximizing combination of resources
marginal productivity theory of income distribution
Copyright McGraw-Hill/Irwin 2002
BACK
END

19. NEXT
Wage
Determination
Chapter 28