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Microeconomics Unit 5 . The Resource Market . Topic 1: Intro to the Resource Market . Product Market . Resource Market . Looks at total production Households DEMAND products Firms SUPPLY products . PRODUCT market . Resource Market . Looks at things that go INTO making

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microeconomics unit 5

Microeconomics Unit 5

The Resource Market

topic 1 intro to 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

PRODUCT market
resource market
Resource Market

Looks at things that go INTO making

products (land, labor, capital,

entrepreneurship)

Households SUPPLY resources

Firms DEMAND resources

resource market based on derived demand
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
slide7

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

reasons why demand for labor will shift
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

practice will the demand for roofers shift if so what direction
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
topic 3 market supply of labor
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

reasons why the supply of labor will shift
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

practice will the supply of teachers shift if so which direction
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 market

Topic 4: The labor market

SL

Wage

Change in wages; just a movement ALONG the curves!!!! NOT a shift!

DL

Q

Q of workers

america s highest paying jobs 2011
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.
slide17
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

Lowest paying jobs: *BLS
what are the best and worst jobs
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
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
most dangerous jobs
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
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
slide23
Occupations that you think are highly respected:
  • Why are some jobs more highly respected than others?
most admired jobs forbes
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
reason for backward bending s of labor
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.
slide27

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

slide28

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

slide29

Minimum Wage

Wage

S

$15

$8

$6

Above Equilibrium!

D

5 6 7 8 9 10 11 12

Q Labor

slide30

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

slide33

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

marginal factor cost mfc
Marginal FACTOR Cost (MFC)

Additional cost of using one more resource

slide41

In the resource market: firms

compare the MFC to MRP to

determine resource usage

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

Profit maximizing

MRP = MFC

what should the firm do hire more less or stay put
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

topic 7 economic models of the labor market
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
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

slide50

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

slide53

What happens to the wage and quantity in the market and firm if new workers enter the industry?

SL

Wage

Wage

SL1

MFC=W=S

WE

W1

MFC=W=S

DL=MRP

DL

Q

Qe

Q1

Q

QE

Q1

Industry

Firm

topic 9 monopsony labor market
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
Monopsony
  • Must pay higher wage to attract more workers
monopsony1
Monopsony
  • Must pay higher wage to attract more workers

MRC increases as firm hires more workers

slide57

Monopsony

Hires fewer workers and pays lower wage than perfectly competitive market

MFC

Wage

W=SL

Q determined by MRP=MFC; wage determined by Supply

WE

DL=MRP

QE

topic 10 combining resources land labor and capital
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”

slide60

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
LEAST COST RULEin 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
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???
practice1
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?

slide65

$10

$5

slide66

$10

$5

If you only have $35, what is the best combination or resources?

mp p robots mp p worker
MP/P (robots) = MP/P(worker)

$10

$5

If you only have $35, the best combination is 2 robots and 3 workers

slide69

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.
slide73

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