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

2. Use the concept of DERIVED DEMAND to explain this cartoon
What about SUPPLY?

3. Shifter Review 3 Resource Demand Shifters (Based on MRP)
Demand (price) of the product
Productivity of the resource
Price of related resources
3 Resource Supply Shifters
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 and traditions regarding leisure time and societal rolls.
Ex: Why did the US Labor supply increase during WWII?

4. Imperfect Competition: Monopsony
Resource Markets
Imperfect Competition: Monopsony
Perfect
Competition
Monopsony
Characteristics:
One firm hiring workers
The firm is large enough to manipulate the market
Workers are relatively immobile
Firm is wage maker
To hire additional workers the firm must increase wage
Examples:
Central American Sweat Shops
Midwest small town with a large Car Plant
NCAA 4

5. Marginal Resource Cost
Assume that this firm CAN NOT wage discriminate and must pay each worker the same wage.
MRC Wage
Ko’s Coal Mining Co.
Wage rate (per hour)
Number of
Workers
Total Resource Cost
Marginal Resource Cost
$4.00 $0 -
4.50 1
$4.50
5.00 2
10.00
5.50 3
16.50
6.50
6.00 4
24.00
7.50
7.00 5
35.00 11
8.00 6
48.00 13
9.00 7
63.00 15 8
80.00 17

6. If the firm can’t wage discriminate, where is MRC?
Monopsony
If the firm can’t wage discriminate, where is MRC?
Wage
MRC
SL=wage WE
DL=MRP QE
Quantity for Labor

7. Their goal is to increasing wages and benefits
Labor Unions
Their goal is to increasing wages and benefits

8. How do Unions Increase Wages?
Convince Consumers to buy only Union Products
Ex: Advertising the quality of union/domestic products
Lobbying government officials to increase demand
Ex: Teacher’s Union petitions governor to increase spending.
Increase the price of substitute resources
Ex: Unions support increases in minimum wage so employers are less likely to seek non- union workers

9. Labor Markets

10. The Effects of Unions in Monopsony1.
The Union is successful in requiring that new teachers have to pass a state competency test to be employed. 2.
The Labor Union successfully conducts a national advertisement to get people to buy union products. 3.
The Union educates workers in new methods of production, which leads to increased productivity. 4.
The union promotes national legislation to increase tariffs placed on foreign products. 5.
The Labor Unions bargains for and wins an increase in the wage rate above the equilibrium wage rate. 6.
The labor union signs an agreement that employers can only hire union members.

11. The Effects of Unions in Competitive Labor Market1.
The Union is successful in requiring that new teachers have to pass a state competency test to be employed. 2.
The Labor Union successfully conducts a national advertisement to get people to buy union products. 3.
The Union educates workers in new methods of production, which leads to increased productivity. 4.
The union promotes national legislation to increase tariffs placed on foreign products. 5.
The Labor Unions bargains for and wins an increase in the wage rate above the equilibrium wage rate. 6.
The labor union signs an agreement that employers can only hire union members.
Wage QL SL DL
SL1 QL
Wage SL DL
DL1 QL
Wage SL DL
DL1 QL
Wage SL DL
DL1 QL
Wage SL DL QL
Wage SL DL
SL1

12. The Effects of Unions in Competitive Labor Market1.
The Union is successful in requiring that new teachers have to pass a state competency test to be employed. 2.
The Labor Union successfully conducts a national advertisement to get people to buy union products. 3.
The Union educates workers in new methods of production, which leads to increased productivity. 4.
The union promotes national legislation to increase tariffs placed on foreign products. 5.
The Labor Unions bargains for and wins an increase in the wage rate above the equilibrium wage rate. 6.
The labor union signs an agreement that employers can only hire union members.
Wage QL SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL

13. The Effects of Unions in Competitive Labor Market1.
The Union is successful in requiring that new teachers have to pass a state competency test to be employed. 2.
The Labor Union successfully conducts a national advertisement to get people to buy union products. 3.
The Union educates workers in new methods of production, which leads to increased productivity. 4.
The union promotes national legislation to increase tariffs placed on foreign products. 5.
The Labor Unions bargains for and wins an increase in the wage rate above the equilibrium wage rate. 6.
The labor union signs an agreement that employers can only hire union members.
Wage QL SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL

14. The Effects of Unions in Competitive Labor Market1.
The Union is successful in requiring that new teachers have to pass a state competency test to be employed. 2.
The Labor Union successfully conducts a national advertisement to get people to buy union products. 3.
The Union educates workers in new methods of production, which leads to increased productivity. 4.
The union promotes national legislation to increase tariffs placed on foreign products. 5.
The Labor Unions bargains for and wins an increase in the wage rate above the equilibrium wage rate. 6.
The labor union signs an agreement that employers can only hire union members.
Wage QL SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL QL
Wage SL DL

15. Labor Markets and Globalization

16. Check your Tags

17. Why is Globalization Happening? What types of jobs are outsourced?
Globalization is the result of firms seeking lowest costs. Firms are seeking greater profits.
Parts are made in China because labor is significantly cheaper.
What is Outsourcing?
Outsourcing is when firms send jobs overseas.
What types of jobs are outsourced?
For many years it was only unskilled jobs, but now other skilled jobs are sent overseas.

19. Advantages and Disadvantages
Increases U.S. unemployment
Less US tax revenue generated from workers and corporations means less public benefits
Foreign workers don’t receive same protections as US workers
Advantages
Lowers prices for nearly all goods and services
Decreases world unemployment
Improves quality of life and decreases poverty in less developed countries

20. 2011 AP MicroEcon FRQ Form B #3
Wage($)
Marginal Factor Cost
Woodland is a small town in which everyone works for TreeMart, the local lumber company. TreeMart is a monopsonist in the labor market and a perfect competitor in the lumber market. In the short run, labor is the only variable input. The labor market for TreeMart is given in the graph. 25 20
17.5 15
12.5 10
Supply of Labor
Marginal Revenue Product
Quantity of Labor
100 units
Identify the profit-maximizing quantity of labor for TreeMart.
Identify the wage rate TreeMart pays to hire the profit-maximizing quantity of labor.
Identify the quantity of labor hired in each of the following situations.
(i) TreeMart operates in a competitive labor market.
(ii) The government imposes a minimum wage of $12.5. Explain.
$10
200 units
150 units
MFC curve becomes horizontal at the minimum wage up to a quantity of 150.

21. Marginal Revenue Product Per Day
2010 AP MicroEcon FRQ Form B #2
Number of Workers
Marginal Revenue Product Per Day 1
$450 2
$500 3 4
$400 5
$300 6
$100
The table above gives the short-run marginal revenue product of labor per day for a perfectly competitive firm.
The firm is currently selling its product at the market price of $5.
Calculate the marginal (physical) product of the third worker.
Define the law of diminishing marginal returns and explain why it occurs.
Diminishing marginal returns first occur with the hiring of which worker for the firm?
What is the highest daily wage that the firm is willing to pay to hire the fifth worker?
What will happen to the demand for labor if the market price of the product increases? Explain.

22. Marginal Revenue Product Per Day
2010 AP MicroEcon FRQ Form B #2
Number of Workers
Marginal Revenue Product Per Day 1
$450 2
$500 3 4
$400 5
$300 6
$100
The table gives the short-run marginal revenue product of labor per day for a perfectly competitive firm.
The firm is currently selling its product at the market price of $5.
Calculate the marginal (physical) product of the third worker.
Define the law of diminishing marginal returns and explain why it occurs.
$450/$5 per unit = 90 units
as more and more units of a variable input are added to a fixed input, the output increases at a decreasing rate.
the overuse of the fixed input.
Diminishing marginal returns first occur with the hiring of which worker for the firm?
What is the highest daily wage that the firm is willing to pay to hire the fifth worker?
What will happen to the demand for labor if the market price of the product increases? Explain.
The hiring of the third worker.
$300.
The demand for labor will increase because the increase in the product price raises the marginal revenue product of labor.

23. 2008 AP MicroEcon FRQ Form B #3
3. GW Company produces and sells hats in a perfectly competitive market at a price of $2 per hat. Assume that labor is the only variable input and the wage rate is $15 per unit of labor per day. The table below shows GW’s short-run production function for hats.
Number Of Workers Per Day 1 2 3 4 5 6
Output Of Hats Per Day 10 26 36 44 49 52
(a) After which worker do diminishing marginal returns begin?
(b) Calculate the marginal physical product of the fifth worker.
(c) Calculate the marginal revenue product of the third worker.
(d) How many workers will GW hire to maximize profit?
(e) If GW Company has fixed costs equal to $20, what will be the company’s short-run economic profits from hiring two workers?
(f) If the price of hats increases, what will happen to the number of workers hired in the short run? Explain.

24. 2010 AP MicroEcon FRQ Form A #2
2. The John Lamb Company, a profit-maximizing firm producing widgets, is in a perfectly competitive widget market. Assume John Lamb employs a fixed number of employees and rents a machine for a variable number of hours from a perfectly competitive market.
(a) Using correctly labeled side-by-side graphs of the factor market for machines and the John Lamb Company, show each of the following.
(i) The equilibrium rental price of machines in the factor market, labeled as PR
(ii) John Lamb’s equilibrium rental quantity of machines, labeled as QL
(b) Assume that the popularity of widgets declines, decreasing the demand for widgets. What will happen to each of the following?
(i) Marginal product curve for machine-hours
(ii) Marginal revenue product curve for machine-hours. Explain.
(c) John Lamb is employing the cost-minimizing combination of inputs. The marginal product of labor is 28 widgets per worker hour and the wage rate is $14 per hour. The marginal product of the machine is 60 widgets per machine-hour. What is the hourly rental price of a machine?