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

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

3. 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

4. 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

5. Do you support this new law?
Minimum Wage
Assume the government was interested in increasing the federal minimum wage to $12 an hour
Do you support this new law?
Why or why not

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

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

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

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

10. 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.

11. Minimum Wage Worksheet

12. Maximizing Output MPx = MPy Px Py $10 $5 MPR MPW (Workers)
# Times
Going
MPR
(Robots)
MP/PR
(PriceR =$10)
MPW (Workers)
MP/PW
(PriceW =$5)
1st 30 3 20 4
2nd 2 15
3rd 10 1
4th 5
.50
If you only have $35, what combination of robots and workers will maximize output?

13. If you only have $35, the best combination is 2 robots and 3 workers
Maximizing Output
MPx = MPy
$10 $5
Px Py
# Times
Going
MPR
(Robots)
MP/PR
(PriceR =$10)
MPW (Workers)
MP/PW
(PriceW =$5)
1st 30 3 20 4
2nd 2 15
3rd 10 1
4th 5
.50
If you only have $35, the best combination is 2 robots and 3 workers

14. 2010 Practice FRQ
3 apples and 2 oranges 14