Transcript econlastminuteitems

Economic Concepts
Ch 12-Demand For
Resources
• Derived Demand-from the products that
resources produce.
• Marginal Revenue Product(MRP)-change in tl
revenue resulting from the use of each
additional unit of resource.
• MRP=MRC
– WHY? Profit seeking rule
Profit Seeking Rule
• To maximize profits a firm should hire
additional units of a resource as long as
each successive unit adds more to
firm’s total revenue than to total cost.
MRP=MRC
• MRP measures how much each successive
unit of resource adds to revenue
• MRC measures each additional unit of
resource adds to resource cost.
• MRP=MRC is similar to MR=MC; same profit
maximization rule
• MRP=MRC deals with inputs
• MR=MC deals with outputs
(1)
(2)
(3)
(4)
(5)
(6)
Units of Total Product
Marginal
Product Total Revenue, Marginal Revenue
Resource
(Output)
Product (MP) Price
(2) X (4)
Product (MRP)
Imperfectly
Competitive
Firm’s
Demand for
A Resource
0
7
13
18
22
25
27
28
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7
6
5
4
3
2
1
$2.80
2.60
2.40
2.20
2.00
1.87
1.75
1.65
$ 0.00
18.20
31.20
39.60
44.00
46.25
47.25
46.20
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$18.20
13.00
8.40
4.40
2.25
1.00
-1.05
$18
16
Resource Wage
(Wage Rate)
0
1
2
3
4
5
6
7
14
D=MRP
(Pure Competition)
12
10
8
6
D=MRP
(Imperfect
2 Competition)
4
0
1
2
3
4
5
6
7
-2
Quantity of Resource Demanded
12-5
Demand Curve
• Imperfectly Competitive Seller Demand
Curve
– Slopes Downward
– Marginal Product & Product Price fall as
resource employment and output rise.
• Pure Competition Seller Demand Curve
– Downward slope is greater than imperfect
– Pure competitor can sell added output at a
constant price.
Ch 13 Wage Determination
• Purely competitive labor market
– Numerous firms compete for labor
– Qualified workers w/ identical skills supply
labor
– Firms and individual workers are “wage
takers”
Role of Productivity
• Labor demand depends on
productivity
• U.S. labor highly productive
– Plentiful capital
– Access to abundant natural resources
– Advanced technology
– Labor quality
– Other factors
Competitive Labor Market
• Market demand for labor
– Sum of firm demand
– Example: carpenters
• Market supply for labor
– Upward sloping
– Competition among industries
• Labor market equilibrium
– MRP = MRC rule
Competitive Labor Market
Labor Market
Individual Firm
a
($10)
WC
($10)
WC
D=MRP
(∑ mrp’s)
0
Wage Rate (Dollars)
Wage Rate (Dollars)
S
QC
(1000)
Quantity of Labor
0
e
b
c
s=MRC
d=mrp
qC
(5)
Quantity of Labor
13-10
Monopsony
• Employer has buying power
• Characteristics
– Single buyer
– Labor immobile
– Firm “wage maker”
• Firm labor supply upward sloping
• MRC higher than wage rate
• Equilibrium
Monopsony Model
Wage Rate (Dollars)
MRC
S
b
a
Wc
Wm
c
MRP
0
Qm
Qc
Quantity of Labor
• Examples of monopsony power
13-12
Key Terms
• wage rate
• minimum wage
• nominal wage
• wage differentials
• real wage
• marginal revenue
productivity
• purely competitive
labor market
• noncompeting groups
• monopsony
• human capital
• exclusive unionism
• compensating
differences
• occupational
licensing
• incentive pay plan
• inclusive unionism
• bilateral monopoly
13-13
Chapter 14 Rent,
Interest,Profit
•
•
•
•
•
Economic rent
The loanable funds theory
Interest rate variation
Economic profits
Distribution of U.S. earnings
Economic Rent
• Price paid for land and other
natural resources
• Perfectly inelasticity supply
• Changes in demand
• A surplus payment
Interest
•
•
•
•
Price paid for use of money
Stated as a percentage
Money is not a resource
Loanable funds theory
–Supply of loanable funds
–Demand for loanable funds
Loanable Funds Theory
• Extending the model
• Financial institutions
• Changes in supply
– Household thrift
• Changes in demand
– Rate of return on investment
• Other participants
Sources of Economic Profit
• Static economy
• Risk and profit
– Insurable and uninsurable risks
– Changes in economic environment,
structure of economy, government
policy
• Innovations and profit
• Monopoly and profit