Microeconomics Unit 5

1. Microeconomics Unit 5 The Resource Market

2. Topic 1: Intro to the Resource Market Product Market Resource Market

3. Looks at total production Households DEMAND products Firms SUPPLY products PRODUCT market

4. Resource Market Looks at things that go INTO making products (land, labor, capital, entrepreneurship) Households SUPPLY resources Firms DEMAND resources

5. Resource market based on: Derived Demand • 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

6. Derived demand for cars???

7. Topic 2: Market Demand for Labor • FIRMS demand labor. • As wage falls, Qd increases. • As wage increases, Qd falls. Wage DL Quantity of Workers 7

8. Increase = demand shifts to right Decrease = demand shifts to the left D D1 Shifts in the Market Demand for Labor

9. Reasons why demand for Labor will shift: • 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 • Change in productivity (increase in productivity makes workers more valuable = increase in demand) • Change in price of other resources 4. Change in the demand for the product

10. 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

11. Topic 3: Market supply of Labor Households supply labor. Labor Supply Wage • As wage increases, Qs increases. • As wage decreases, Qs decreases. Quantity of Workers 11

12. Increase = supply of labor shifts to the right Decrease = supply of labor shifts to the left s1S Shifts in Market Supply of Labor

13. Reasons why the supply of labor will shift • Change in Number of workers • Change in Government regulation/licensing 3. Change in worker attitudes Leisure time vs. work

14. 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

15. Topic 4: The labor market SL Wage Change in wages; just a movement ALONG the curves!!!! NOT a shift! DL Q Q of workers

16. 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.

17. 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

18. Fast food cooks Food preparation and serving Dishwashers Shampooers. Cafeteria/coffee shop counter attendant Bartender's helper Restaurant hostess Amusement/recreation attendant Cashiers Ushers Lowest paying jobs: *BLS

19. What are the best and worst jobs??? • Criteria based on: Physical Demands, Work Environment, Income, Outlook (Job Growth), and Stress.

20. Top 10 best and worst jobs 2011 Best Jobs Worst Jobs Roustabout. Ironworker. Lumberjack. Roofer. Taxi driver. Emergency medical technician. Welder. Meter reader. Construction worker • Software engineer. • Mathematician. • Actuary. • Statistician. • Computer systems analyst. • Meteorologist. • Biologist. • Audiologist. • Dental hygienist

21. Most Dangerous Jobs 1. Bomb Squad Technician 2. Armed Forces 3. Miner 4. Police Officer 5. Alaskan Crab Fishing 6. Firefighter * career builder survey

22. Top 10 scary, creepy and just plain disturbing jobs www.careercast.com 6. Road kill remover specialist Crime scene cleaner Reptologist Septic tank services 10. Forensic entomologist • 1. Field epidemiologist • 2. Embalmer • 3 pest control specialist • 4. Slaughterer • 5. Arachnologist

23. Occupations that you think are highly respected: • Why are some jobs more highly respected than others?

24. 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

25. Backward bending supply of labor curve

26. 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.

27. Topic 5: Minimum Wage Wage S $15 $8 $6 The government wants to “help” workers because the equilibrium wage is too low D 5 6 7 8 9 10 11 12 Q Labor

28. Fast Food Cooks Wage S $15 $8 $6 Government sets up a “WAGE FLOOR.” Where? D 5 6 7 8 9 10 11 12 Q Labor

29. Minimum Wage Wage S $15 $8 $6 Above Equilibrium! D 5 6 7 8 9 10 11 12 Q Labor

30. Minimum Wage Wage Surplus of workers (Unemployment) S $15 $8 $6 What’s the result? Q demanded falls. Q supplied increases. D 5 6 7 8 9 10 11 12 Q Labor

31. Topic 6: Labor Decisions of the Individual Firm

32. The firm’s demand for labor = MARGINAL REVENUE PRODUCT (MRP) D=MRP

33. 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

34. Complete the table below (price of product is $2.00)

35. Complete the table below (price of product is $2.00) Stages of return???

36. The firm’s supply of labor = MARGINAL FACTOR COST (MFC)

37. Marginal FACTOR Cost (MFC) Additional cost of using one more resource

38. Complete the table assuming wage is $8.00

39. Complete the table assuming the wage is $8.00

40. 20/20 video “How much are you worth? “

41. In the resource market: firms compare the MFC to MRP to determine resource usage

42. Maximizing Profit in the labor market • MRP>MFC Hire • MRP<MFC Don’t HIRE • MRP=MFC Hire and stop Profit maximizing MRP = MFC

43. What should the firm do??? Hire more, less or stay put??? • MRP= $12; MFC=$6 • MRP=$10; MFC = $10 3. MRP = $5; MFC = $10 • MRP = $45; MFC = $15 5. MRP = $20; MFC = $40

44. Complete the following chart. Assume the wage is $20 and the price of the product is $10

45. Complete the following chart. Assume the wage is $20 and the price of the product is $10

46. Which worker produced increasing, decreasing and negative returns?

47. How many workers should this firm hire??? WHYWhat is the profit at this number???

48. Topic 7: Economic models of the labor market Perfect competition Monopsony Regardless of type of firm, all Firms will hire where MRP=MRC

49. 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

50. Use side-by-side graph showing labor market and perfectly competitive firm SL Wage Wage MFC=W=S W DL=MRP DL Q Q Q Q Industry Firm