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Resource Demand. Resource Demand. An increase in the demand for a product will increase the demand for a resource used in its production A decrease in product demand will decrease the demand for that resource. Changes in Productivity. Three ways to alter the productivity of any resource:

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Resource demand1
Resource Demand

  • An increase in the demand for a product will increase the demand for a resource used in its production

  • A decrease in product demand will decrease the demand for that resource


Changes in productivity
Changes in Productivity

  • Three ways to alter the productivity of any resource:

  • Quantities of other resources

  • Technological advance

  • Quality of the varied resource


Demand curves to shift
Demand Curves to Shift

  • Changes in prices of goods

  • Changes in supply of other factors

  • Changes in technology


1 changes in prices of goods
1. Changes in prices of goods

  • Factor Demand = Derived Demand

  • P X MPL


Shifts of the value of the marginal product curve
Shifts of the Value of the Marginal Product Curve

(a) An Increase in the Price of Wheat

(b) A Decrease in the Price of Wheat

Wage rate

Wage rate

C

A

A

B

Market wage rate

$200

$200

MPL

1

MPL

MPL

3

2

MPL

1

0

5

8

0

2

5

Quantity of labor (workers)

Quantity of labor (workers)


2 changes in supply of other factors
2. Changes in supply of other factors

  • George and Martha acquire more land!

  • Each worker now produces more wheat because they have more land to work with

  • What happens to the Marginal Product of Labor?

  • MPL will rise at any given level of employment


Shifts of the value of the marginal product curve1
Shifts of the Value of the Marginal Product Curve

(a) An Increase in the Price of Wheat

(b) A Decrease in the Price of Wheat

Wage rate

Wage rate

C

A

A

B

Market wage rate

$200

$200

MPL

1

MPL

MPL

3

2

MPL

1

0

5

8

0

2

5

Quantity of labor (workers)

Quantity of labor (workers)


3 changes in technology
3. Changes in technology

  • Improved technology can increase or reduce demand for a given factor of production

  • How can technological producer reduce factor demand?

    • Ex. Horses and Transportation Revolution

  • Usual effect of technological progress is to increase demand for a given factor



Elasticity of resource demand
Elasticity of Resource Demand

  • Measures the extent to which producers change the quantity of a resource they hire when its price changes

  • Erd > 1 = resource demand is elastic

  • Erd < 1 = resource demand is inelastic

  • Erd = 1 = resource demand is unit-elastic


Elasticity of resource demand1
Elasticity of Resource Demand

  • Sustainability is a fundamental determinant of elasticity

  • The greater the sustainability of other resources, the more elastic is the demand for a particular resource


Elasticity of resource demand2
Elasticity of Resource Demand

  • Demand for labor is a derived demand, the elasticity of the demand for the output that the labor is producing will influence the elasticity of the demand for labor

  • Greater the price elasticity of product demand, the greater the elasticity of resource demand


Optimal combination of resources
Optimal Combination of Resources

  • What combination of resources a firm will choose when ALL its inputs are variable?

  • What combination of resources will minimize costs at a specific level of output?

    • Least-cost combination of resources

    • The last dollar spend on each resource yields that same MP


Optimal combination of resources1
Optimal Combination of Resources

  • Profit-Maximizing combination of resources is when each resource is employed to the point at which its marginal revenue product equals its resource price

  • Labor – PL = MRPL

  • Capital – PC = MRPC



Resource demand2
Resource Demand

  • A decrease in product demand will decrease the demand for that resource


Changes in productivity1
Changes in Productivity

  • Three ways to alter the productivity of any resource:


Demand curves to shift1
Demand Curves to Shift

  • Changes in _________________

  • Changes in _________________

  • Changes in _________________


1 changes in prices of goods1
1. Changes in prices of goods

  • Factor Demand = _______________

  • P X MPL


Shifts of the value of the marginal product curve2
Shifts of the Value of the Marginal Product Curve

(a) An Increase in the Price of Wheat

(b) A Decrease in the Price of Wheat

Wage rate

Wage rate

C

A

A

B

Market wage rate

$200

$200

MPL

1

MPL

MPL

3

2

MPL

1

0

5

8

0

2

5

Quantity of labor (workers)

Quantity of labor (workers)


2 changes in supply of other factors1
2. Changes in supply of other factors

  • George and Martha acquire more land!

  • Each worker now produces more wheat because they have more land to work with

  • What happens to the Marginal Product of Labor?


Shifts of the value of the marginal product curve3
Shifts of the Value of the Marginal Product Curve

(a) An Increase in the Price of Wheat

(b) A Decrease in the Price of Wheat

Wage rate

Wage rate

C

A

A

B

Market wage rate

$200

$200

MPL

1

MPL

MPL

3

2

MPL

1

0

5

8

0

2

5

Quantity of labor (workers)

Quantity of labor (workers)


3 changes in technology1
3. Changes in technology

  • Improved technology can increase or reduce demand for a given factor of production

  • How can technological producer reduce factor demand?



Elasticity of resource demand3
Elasticity of Resource Demand

  • Measures the extent to which producers change the quantity of a resource they hire when its price changes

  • Erd > 1 = resource demand is _________

  • Erd < 1 = resource demand is _________

  • Erd = 1 = resource demand is _________


Elasticity of resource demand4
Elasticity of Resource Demand

  • Sustainability is a fundamental determinant of elasticity


Elasticity of resource demand5
Elasticity of Resource Demand

  • Demand for labor is a derived demand, the elasticity of the demand for the output that the labor is producing will influence the elasticity of the demand for labor

  • Greater the price elasticity of product demand, the greater the elasticity of resource demand


Optimal combination of resources2
Optimal Combination of Resources

  • What combination of resources a firm will choose when ALL its inputs are variable?

  • What combination of resources will minimize costs at a specific level of output?

    • Least-cost combination of resources

    • The last dollar spend on each resource yields that same MP


Optimal combination of resources3
Optimal Combination of Resources

  • Profit-Maximizing combination of resources is when each resource is employed to the point at which its marginal revenue product equals its resource price

  • Labor – ____ = ____

  • Capital – ____ = ____


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