Transcript AP Micro 5-2 Resource Demand Curve

Unit 5: The
Resource Market
1
Resource Demand
Example 1:
If there was a significant increase in the demand
for pizza, how would this affect the demand
for cheese?
Cows? Milking Machines? Veterinarians? Vet
Schools? Etc.
Example 2:
An increase in the demand for cars increases the
demand for…
Derived DemandThe demand for resources is determined
(derived) by the products they help
produce.
2
Check In
Come up with your own example of
derived demand.
Demand for ___ increased/decreased in the
product market because ____. Therefore,
demand for ___ increased/decreased in the
product market because ____.
Additionally, demand for ___
increased/decreased in the product market
because ____.
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.
4
Does having an education mean that you will
automatically have a higher income?
5
Real Life Application
Top 5 Fastest Growing Jobs (2000-2010)
1.
2.
3.
4.
5.
Computer Software Engineers, Applications
Computer Support Specialists
Computer Software Engineers, Systems
Computer Systems Administrators
Data Communications Analyst
Top 5 Fastest Declining Jobs
1.
2.
3.
4.
5.
Railroad Switch Operators
Shoe Machine Operators
Telephone Operators
Radio Mechanics
Loan Interviewers
WHY?
“You’ve got to learn
computers!”
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Resource Demand
Example 1:
If there was a significant increase in the demand
for pizza, how would this affect the demand
for cheese?
Cows? Milking Machines? Veterinarians? Vet
Schools? Etc.
Example 2:
An increase in the demand for cars increases the
demand for…
Derived DemandThe demand for resources is determined
(derived) by the products they help
produce.
7
Check In
Come up with your own example of
derived demand.
Demand for ___ increased/decreased in the
product market because ____. Therefore,
demand for ___ increased/decreased in the
product market because ____.
Additionally, demand for ___
increased/decreased in the product market
because ____.
8
Real Life Application
9
Check In
Why do you think chemical engineers
make significantly more money than
housecleaners?
10
The MRP of a resource equals
the Demand.
11
Drawing the
Demand Curve for
Resources
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Price = $10 Wage = $20
Yesterday's Activity
Units of
Labor
Total
Product
(Output)
0
1
2
3
4
5
6
7
0
7
17
24
27
29
30
27
Marginal
Product
Product
Price
(MP)
7
10
7
3
2
1
-3
0
10
10
10
10
10
10
10
MRP
0
70
100
70
30
20
10
-30
Shows how
many
workers a
firm is
willing and
able to hire
at different
wages.
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Use the following data:
Units of
Labor
Total
Product
(Output)
0
1
2
3
4
5
6
7
0
7
17
24
27
29
30
27
Price = $10 Wage = $20
Marginal
Product
Product
Price
(MP)
7
10
7
3
2
1
-3
0
10
10
10
10
10
10
10
MRP
0
70
100
70
30
20
10
-30
Demand
for this
resource
Plotting the MRP/Demand curve
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Demand=MRP
Why is it downward sloping?
Because of the law of
diminishing marginal
returns
Each additional resource
is less productive and
therefore is worth less
than the previous one
Wage Rate
$100
80
60
40
20
D=MRP
1
2
3
4
5
6
7
8
Q
Quantity of Workers
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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
1
2
3
4
5
6
7
8
Q
Quantity of Workers
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What happens if demand for the product
increases?
Wage Rate
$100
MRP increases causing
demand to shift right
80
60
40
D1=MRP1
20
D=MRP
1
2
3
4
5
6
7
8
Q
Quantity of Workers
17
Check In
What were some shifters of demand in the
product market?
What do you think might cause demand
for labor to shift in the resource market?
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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?
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Drawing the
Demand Curve for
Resources
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Use the following data:
Units of
Labor
Total
Product
(Output)
Price = $10 Wage = $20
Additional
Marginal
Product Revenue
Product
Price
per worker
(MP)
Additional
Cost
per worker
0
0
0
0
0
7
10
1
7
70
20
10
10
2
17
100
20
7
10
3
24
70
20
3
10
4
27
30
20
2 change
10 if the
5
29
20 demand
20
How
would
this
1
10
6
30
10
20
for the good increased significantly?
-3
10
71. Price27of the good
-30
20
would
increase.
2. Value of each worker would increase.
21
Use the following data:
Units of
Labor
Total
Product
(Output)
0
1
2
3
4
5
6
7
0
7
17
24
27
29
30
27
Price = $100 Wage = $20
Marginal
Product
Product
Price
(MP)
7
10
7
3
2
1
-3
Additional
Revenue
per worker
0
100
100
100
100
100
100
100
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Use the following data:
Units of
Labor
Total
Product
(Output)
0
1
2
3
4
5
6
7
0
7
17
24
27
29
30
27
Price = $100 Wage = $20
Marginal
Product
Product
Price
(MP)
7
10
7
3
2
1
-3
0
100
100
100
100
100
100
100
Additional
Revenue
per worker
0
700
1000
700
300
200
100
-300
Each
worker is
worth
more!!
THIS IS
DERIVED
DEMAND.
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Use the following data:
Units of
Labor
Total
Product
(Output)
Price = $10 Wage = $20
Additional
Marginal
Product Revenue
Product
Price
per worker
(MP)
Additional
Cost
per worker
0
0
0
0
0
7
10
1
7
70
20
10
10
2
17
100
20
7
10
3
24
70
20
3
10
4
27
30
20
2 this10change
5 How
29 would
20if the20
1
10
6
30
10 increased?
20
productivity of each worker
-3
10
27 Product
-30
20
1.7 Marginal
would
increase.
2. Value of each worker would increase.
24
Use the following data:
Units of
Labor
0
1
2
3
4
5
6
7
Total
Product
(Output)
0
70
170
240
270
290
300
270
Price = $10 Wage = $20
Marginal
Product
Product
Price
(MP)
70
100
70
30
20
10
-30
0
10
10
10
10
10
10
10
Additional
Revenue
per worker
0
700
1000
700
300
200
100
-300
Each
worker is
worth
more!
More
demand
for the
resource.
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3 Shifters of Resource Demand
Identify the Resource and Shifter (ceteris paribus):
1. Increase in demand for microprocessors leads to a(n)
________ in the demand for processor assemblers.
2. Increase in the price for plastic piping causes the
demand for copper piping to _________.
3. Increase in demand for small homes (compared to big
homes) leads to a(n) _________ the demand for lumber.
4. For shipping companies, __________ in price of trains
leads to decrease in demand for trucks.
5. Decrease in price of sugar leads to a(n) __________ in
the demand for aluminum for soda producers.
6. Substantial increase in education and training leads to
an ___________ in demand for skilled labor.
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3 Shifters of Resource Demand
Identify the Resource and Shifter (ceteris paribus):
1. Increase in demand for microprocessors leads to a(n)
________
increase in the demand for processor assemblers.
2. Increase in the price for plastic piping causes the
demand for copper piping to _________.
increase
3. Increase in demand for small homes (compared to big
decrease the demand for lumber.
homes) leads to a(n) _________
4. For shipping companies, __________
decrease in price of trains
leads to decrease in demand for trucks.
5. Decrease in price of sugar leads to a(n) __________
in
increase
the demand for aluminum for soda producers.
6. Substantial increase in education and training leads to
an ___________
increase in demand for skilled labor.
27
Check In
What were some shifters of supply in the
product market?
What do you think might cause supply for
labor to shift in the resource market?
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Resource Supply Shifters
Supply Shifters for Labor
1. Number of qualified workers
• Education, training, & abilities required
2. 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?
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
Quantity of Workers
SL
DL
DL
Quantity of Workers
What are some reasons for differences in wage?
• Investment in Human Capital
•Becoming a surgeon requires a significant
investment in human capital. Wages paid for
surgeons must cover the investment in human
capital required to become a surgeon.
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
•Collective bargaining and threats to strike often
lead to higher that equilibrium wages
• Wage Discrimination•Some people get paid differently for doing the
same job based on race or gender (Very illegal!).
Check In
Go through PPT. List at least:
-2 things you feel like you know well
-2 things you need to review. How will you
review?
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