Microeconomics Unit 5
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Transcript of Microeconomics Unit 5
Microeconomics Unit 5
The Resource Market
Topic 1: Intro to the Resource Market
Product Market
Resource Market
PRODUCT market
Looks at total production
Households DEMAND products Firms SUPPLY products
Resource Market
Looks at things that go INTO makingproducts (land, labor, capital,entrepreneurship)
Households SUPPLY resources Firms DEMAND resources
• Derived Demand: The demand for the resources that go into making a product.
• An increase in the demand for a product will increase the demand for the resources (land, labor, capital) used to produce it
Resource market based on: Derived Demand
Derived demand for cars???
Topic 2: Market Demand for Labor •FIRMS demand labor.
DL
Quantity of Workers
Wage • As wage falls, Qd increases.
• As wage increases, Qd falls.
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Shifts in the Market Demand for Labor
• Increase = demand shifts to right• Decrease = demand shifts to the left
D
D1
Reasons why demand for Labor will shift:
1. Change in price of product P increases = increase in the demand for resource used to produce product; price decreases = decrease for the demand for the resource used to produce product 2. Change in productivity (increase in productivity
makes workers more valuable = increase in demand)
3. Change in price of other resources 4. Change in the demand for the product
Practice: Will the demand for ROOFERS shift??? If so, what direction???
• 1. There is an increase in the price of houses • 2. There is a decrease in the wages of roofers• 3. There is a decrease in the demand for
houses• 4. There is an increase in the productivity of
roofers
Quantity of Workers
Wage
• As wage increases, Qs increases.• As wage decreases, Qs decreases.
Labor Supply
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Topic 3: Market supply of Labor
Households supply labor.
Shifts in Market Supply of Labor
• Increase = supply of labor shifts to the right • Decrease = supply of labor shifts to the left
s1 S
Reasons why the supply of labor will shift
1. Change in Number of workers
2. Change in Government regulation/licensing
3. Change in worker attitudesLeisure time vs. work
Practice: Will the supply of teachers shift??? If so, which direction???
1. The government passes a law requiring all teachers to obtain a PH.D
2. More teachers reach retirement age and retire
3. There is a decrease in the wages paid to teachers
Topic 4: The labor marketSL
DL
Wage
QQ of workers
Change in wages; just a movement ALONG the curves!!!! NOT a shift!
America’s Highest Paying Jobs 2011
• With data recently released by the Bureau of Labor Statistics , BLS, CNBC.com took a look at the most highly-compensated occupations in the country, based upon BLS job definitions.
• 1. Doctors/surgeons
• 2. CEO• • 3. Dentists
• 4. Lawyers
• 5. Petroleum engineer
• 6. Architectural engineer
• 7. Computer and information systems manager • 8. Marketing manager
• 9. Financial manager• • 10. Pilot
Lowest paying jobs: *BLS
Fast food cooks
Food preparation and serving
Dishwashers
Shampooers.
Cafeteria/coffee shop counter attendant
Bartender's helper
Restaurant hostess
Amusement/recreation attendant
Cashiers
Ushers
What are the best and worst jobs???
• Criteria based on: Physical Demands, Work Environment, Income, Outlook (Job Growth), and Stress.
Top 10 best and worst jobs 2011
Best Jobs • Software engineer.• Mathematician.• Actuary.• Statistician.• Computer systems
analyst.• Meteorologist.• Biologist.• Audiologist.• Dental hygienist
Worst Jobs • Roustabout.• Ironworker.• Lumberjack.• Roofer.• Taxi driver.• Emergency medical
technician.• Welder.• Meter reader.• Construction worker
Most Dangerous Jobs 1. Bomb Squad Technician 2. Armed Forces 3. Miner 4. Police Officer 5. Alaskan Crab Fishing 6. Firefighter
* career builder survey
Top 10 scary, creepy and just plain disturbing jobs www.careercast.com
• 1. Field epidemiologist
• 2. Embalmer
• 3 pest control specialist • 4. Slaughterer
• 5. Arachnologist
6. Road kill remover specialist
7. Crime scene cleaner
8. Reptologist
9. Septic tank services
10. Forensic entomologist
• Occupations that you think are highly respected:
• Why are some jobs more highly respected than others?
Most admired jobs * Forbes
• 1. Firefighter • 2. Doctor • 3. Nurse • 4. Scientist • 5. Teacher • 6. Military officer • 7. Police officer • 8. Clergymen • 9. Farmer • 10. Engineer
Backward bending supply of labor curve
Reason for backward bending S of labor
• The Substitution effect states that a higher wage makes work more attractive than leisure. Therefore, supply increases.
• The income effect states that a higher wage means workers can achieve a target income by working less hours. Therefore, because it is easier to get enough money they work less.
• When your wage is low, the substitution effect dominates. As wages increase, the income effect starts to dominate.
S
Wage
Q LaborD
Topic 5: Minimum Wage
$15
$8
$6
The government wants to “help” workers because the equilibrium wage is too low
275 6 7 8 9 10 11 12
S
Wage
Q LaborD
Fast Food Cooks
Government sets up a “WAGE FLOOR.”
Where?
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$15
$8
$6
5 6 7 8 9 10 11 12
S
Wage
Q LaborD
Minimum Wage
Above Equilibrium!
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$15
$8
$6
5 6 7 8 9 10 11 12
S
Wage
Q LaborD
What’s the result?Q demanded falls.Q supplied increases.
30
$15
$8
$6
5 6 7 8 9 10 11 12
Surplus of workers(Unemployment)
Minimum Wage
Topic 6: Labor Decisions of the Individual Firm
• The firm’s demand for labor = MARGINAL REVENUE PRODUCT (MRP)
D=MRP
Marginal Revenue Product (MRP)
• Additional revenue of using one more
resource • The value of the resource to the firm; shows
how much each resource is “worth”
MRP = marginal product X price of item
Complete the table below (price of product is $2.00)
# of workers Total product Marginal product Marginal revenue product
1 10
2 22
3 35
4 40
Complete the table below (price of product is $2.00)
# of workers Total product Marginal product Marginal revenue product
1 10 10 $20
2 22 12 $24
3 35 13 $26
4 40 5 $10
Stages of return???
• The firm’s supply of labor = MARGINAL FACTOR COST (MFC)
Marginal FACTOR Cost (MFC)
Additional cost of using one more resource
Complete the table assuming wage is $8.00
# of workers Total cost Marginal FACTOR cost
0
1
2
3
4
Complete the table assuming the wage is $8.00
# of workers Total cost Marginal FACTOR cost
0 0 0
1 $8 $8
2 $16 $8
3 $24 $8
4 $32 $8
“How much are you worth? “
• 20/20 video
In the resource market: firmscompare the MFC to MRP todetermine resource usage
Maximizing Profit in the labor market
• MRP>MFC Hire • MRP<MFC Don’t HIRE • MRP=MFC Hire and stop
Profit maximizingMRP = MFC
What should the firm do??? Hire more, less or stay put???
1. MRP= $12; MFC=$6 2. MRP=$10; MFC = $103. MRP = $5; MFC = $10 4. MRP = $45; MFC = $155. MRP = $20; MFC = $40
Complete the following chart. Assume the wage is $20 and the price of the product is $10
# of workers Total product
Marginal product
Marginal revenue product
Total cost Marginal FACTOR cost
0 0
1 7
2 17
3 24
4 27
5 29
6 30
7 27
Complete the following chart. Assume the wage is $20 and the price of the product is $10
# of workers Total product
Marginal product
Marginal revenue product
Total cost Marginal FACTOR cost
0 0 0 - - -
1 7 7 $70 $20 $20
2 17 10 $100 40 20
3 24 7 $70 60 20
4 27 3 $30 80 20
5 29 2 $20 100 20
6 30 1 $10 120 20
7 27 -3 $-30 140 20
Which worker produced increasing, decreasing and negative returns?
# of workers Total products
Marginal product
Marginal revenue product
Total cost Marginal FACTOR cost
0 0 0 - - -
1 7 7 $70 $20 $20
2 17 10 $100 40 20
3 24 7 $70 60 20
4 27 3 $30 80 20
5 29 2 $20 100 20
6 30 1 $10 120 20
7 27 -3 $-30 140 20
How many workers should this firm hire??? WHYWhat is the profit at this number???
# of workers Total product
Marginal product
Marginal revenue product
Total cost Marginal FACTOR cost
0 0 0 - - -
1 7 7 $70 $20 $20
2 17 10 $100 40 20
3 24 7 $70 60 20
4 27 3 $30 80 20
5 29 2 $20 100 20
6 30 1 $10 120 20
7 27 -3 $-30 140 20
Topic 7: Economic models of the labor market
Perfect competition Monopsony
Regardless of type of firm, all Firms will hire where MRP=MRC
Topic 8: Perfectly competitive labor market
1. many small firms competing to hire a specific type of labor
2. many workers with identical skills 3. wage is set by the market 4. workers are wage takers
- firms can hire as many workers as they want at a wage set by the industry
5. MFC=W=S
SL
DL
Wage
Q
Wage
Q
Industry FirmQ
W
Q
DL=MRP
MFC=W=S
Use side-by-side graph showing labor market and perfectly competitive firm
There is a decrease in the supply of workers. Show how this impacts the below
graphs
What happens to wages??? Will the firm hire more or less workers???
Q1
MFC=W=S1
MFC=W=S
SL
DL
Wage
Q
Wage
Q
Industry FirmQE
WE
Qe
DL=MRP
MFC=W=S
What happens to the wage and quantity in the market and firm if new workers enter the industry?
SL1
W1
Q1
MFC=W=S
Q1
Topic 9: Monopsony Labor market
1. only one employer in the market 2. firm is a wage maker 3. MFC does NOT equal wage/Supply Why???must pay higher wages to attract more
workers
Monopsony
• Must pay higher wage to attract more workers
# of workers Wage Total cost Marginal FACTOR cost
1 $5
2 $6
3 $7
4 $8
5 $9
6 $10
Monopsony
• Must pay higher wage to attract more workers
# of workers Wage Total cost Marginal FACTOR cost
1 $5 $5 $5
2 $6 $12 $7
3 $7 $21 $9
4 $8 $32 $11
5 $9 $45 $13
6 $10 $60 $15
MRC increases as firm hires more workers
W=SL
Wage
QE
WE
DL=MRP
MFC
Monopsony Hires fewer workers and pays lower wage than perfectly competitive market
Q determined by MRP=MFC; wage determined by Supply
Topic 10:Combining Resources (land, labor and capital)
If using multiple resources, a firm should hire the resource that brings them the most value; “bang for the buck”
To find “bang for buck” find the MP/W
• 1. The cost to hire a worker is $10 at an MP of 20. What is the worker’s MP/wage?
• 2. The cost to rent a machine is $100 at an MP of 300. What is the machine’s MP/wage?
LEAST COST RULE in labor market (if using multiple resources)
MP (L) = MP (c ) W(L) W ( c)
If the two resources are equal in their value, firm should stay put. If not equal, firm should hire more of the valuable resource and less of the least valuable resource
Practice
• The price to hire one more baker is $20 at an MP of 40. The price to hire one more waitress is $10 at an MP of 30. If this is a profit maximizing firm, what should the firm do???
Practice
What should the firm do??? 1. MP/W labor is 20, MP/W of machine is 30? 2. MP/W of labor is 10, MP/W of machine is 10? 3. MP/W of labor is 5, MP/W of machine is 2? 4. MP/W of labor is 10, MP/W of machine is 13? 5. MP/W of labor is 3, MP/W of machine is 3?
Budget constraint and combination of resources
# MP(Robots)
MP/w MP (Workers)
MP/w
1 30 202 20 153 10 104 5 5
$10 $5
If you only have $35, what is the best combination or resources?
# MP(Robots)
MP/w MP (Workers)
MP/w
1 30 3 20 42 20 2 15 33 10 1 10 24 5 .50 5 1
$10 $5
If you only have $35, the best combination is 2 robots and 3 workers
MP/P (robots) = MP/P(worker)
# MP(Robots)
MP/w MP (Workers)
MP/w
1 30 3 20 42 20 2 15 33 10 1 10 24 5 .50 5 1
$10 $5
Topic 11: Labor Markets and Globalization
Why is Globalization Happening? • Globalization is the result of firms seeking lowest
costs. Firms are seeking greater profits.• Parts are made in China because labor in
significantly cheaper.
What is Outsourcing?• Outsourcing is when firms send jobs overseas.
Against outsourcing
For outsourcing
Advantages and Disadvantages 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