Friday, November 1, 2013

Unit 5: Factor/Input Market Resource Market

- Perfectly Competitive Labor Market Characteristics - many small firms are hiring workers no one firm is large enough to manipulate the market - many workers with identical skills - wage is constant - workers are age takers firms can hire as many workers as they want at a wage set by the
industry

Perfectly Competitive Labor Market and Firm

! ! ! ! !

! !

How do you know how many resources (workers to employ?

- continue to hire until MPR = MRC

! !

Marginal Resource Cost (MRC)

- The additional cost of an additional resource (worker). - In perfectly competitive labor markets the MRC equals the wage set by the
market and is constant

Marginal Revenue Product

- The additional revenue

! !
"1

- The additional revenue generated by an additional worker (resource) - continue to hire until MRP = MRC how do you know how many resources (workers) to employ

Friday, November 1, 2013

Wealth Education

Professional labor- requires the highest level of education skilled labors- operate complex machines or tasks Rich

High

Level of Human Capital

Semi Skilled- some mechanical ability little amount of training

Poor

! !

Low

Unskilled labor: work with their hands Human Capital:

Demand Re-Defined

- What is Demand for Labor? demand is the different quantities of workers that businesses are willing
and able to hire at different wages

- What is the Law of Demand for Labor? There is an INVERSE relationship between wage and quantity of labor
demanded

- What is supply for Labor? Supply is the different quantities of individuals that are willing and
able to sell their labor at different wages

- What is the Law of Supply for Labor? There is a Direct (or +) relationship between wage and quantity of labor
supplied

wages increase, quantity of labor increase

Where do you get the Market demand?

- Add all the firms together to find the marked of demand

Who demands labor?

- FIRMS demand labor demand for labor shows the quantities of workers that firms will hire at
different wage rates

- Market Demand for Labor is the sum of each firms MRP "2

Friday, November 1, 2013 As wage falls, Quantity demanded increases As wage increases, Quantity demanded decreases
Who supplies labor?

- Individuals supply labor supply of labor is the number of workers that are willing to work at
different wage rates

- higher wages give workers incentives to leave other industries or give up

leisure activities

as wage increase, Quantity supply increase As wage decrease, Quantity supply decrease
Equilibrium

- Wage (the price of labor) is set by the market MRC is perfectly elastic
3 shifters of Resource Demand

- Changes in the Demand for the Product Price increase of the product increases MRP
and demand for he resource $2 is the price of sells

- Changes in productivity technological advances increase Marginal product and therefore MRP/Demand - Changes in Prices of Other Resources Substitute Resources Complementary Resources ex) What happens to the demand for assembly line workers if price of
robots falls?

Resource Supply Shifters

- Supply Shifters for Labor Number of qualified workers - Education, training, & abilities required Government regulation/ licensing - Ex) what if waiters had to obtain a license to serve food? Personal values regarding leisure time and societal roles - ex) Why did the US Labor supply increase during WWII?
What are other reasons for differences in wage?

- Labor Market Imperfections: "3

Friday, November 1, 2013 Insufficient/ misleading job information - This prevents workers from seeking better employment Geographical Immobility - Many people are reluctant or too poor to move so they accept a lower
wage

Unions - Collective bargaining and threats to strike often lead to higher that
equilibrium wages

Wage Discriminations - Some people get paid differently for doing the same job based on race or
gender (Very Illegal!)

Minimum Wage

- people entering, look at eq point to where

price floor is. thats the amount of laborers entering the work force thing

! ! !

A study announces increased cancer risk from drinking coffee Primary Market Affects Supply/Demand Inuence on Price Product Market Demand, taste Decrease Other Market Affects Supply/Demand Inuence on Price Resource/factor Market Demand, Input Decrease

There is an increase in the number of people looking for work Primary Market Affects Supply/Demand Product Market Supply increase Price SL Other Market Affects Supply/Demand Inuence on Price Resource/factor Market Supply Increase

!
!

Inuence on Price

5 4 3 2 1 0 1 2 3 4

- The Union is successful in requiring that new -

DL

Category Axis

"4

teachers pass a competency test to be employed (Supply decrease) The Labor union advertising to get people to buy union products (Demand Increase) The Union educates workers in new methods of production (Demand Increase)or Supply Decrease(but not in this case) The union gets tariffs placed on foreign products(Demand Increase) The labor bargains and wins an increase in the wage rage above equilibrium(Quantity Demanded & Quantity Supply Stay the same b/c its a price floor) The labor union signs an agreement that implorers can only hire union members (Supply Decrease)

Value Axis

Friday, November 1, 2013

Review

- Who demands in the Resource Market? - Who supplies in the Resource Market? - Define Derived Demand The demand for resources is determined (derived) by the products they help
produce

- Identify the shifters of Resource Demand Derived Demand Productivity of the Resources Price of related resources
Shifter Review

- 3 Resource Demand Shifters (based on MRP) Demand (price) of the product Productivity of the resource Price of related resources - 3 Resource Sully Shifters Number of qualified worker - Education, training & abilities required Government regulation/licensee Personal values & traditions regrading leisure time and social
Imperfect Competition: Monopsony

- Characteristics: One firms hiring workers - The firm is large enough to manipulate the market Workers are relatively immobile To hire add Firm is wage maker - To hire additional workers the firm must increase - ex) Central American Sweat Shops, Midwest small town with a large Cat
Plant, NCAA Number of Workers Willing to Work 1 2 3 Annual Wage for Each Worker 20,000 22,000 24,000 26,000 28,000 30,000 Total Wages 20,000 44,000 72,000 104,000 140,000 180,000 Marginal Cost of Workers 20,000 24,00 28,00 32,000 36,000 40,000

"5

4 5 6

Friday, November 1, 2013

Wage rate/hour $4.00 4.50 5.00 5.50 6.00 7.00 8.00 9.00 10.00 Number of Workers 0 1 2 3 4 5 6 7 8 Marginal Resource Cost (number of workers)(Wage2)(number of workers)(Wage1) 4.50 5.50 6.50 7.50 11 13 15 17

- MRC ! Wage - DL=MRP - Pay where MRP=MRC (L) - Pay where the S=MRP=MRC (W) - Monopsony will always higher few workers - Wins Firms making profit - Monopsonists gain higher profits through
lower costs

Consumers pay a lower price - Losses Suppliers have falling income consumers will have fewer choices in the long run
Labor Union

- How do Unions Increase Wages? Convince Consumers to buy only Union Products - ex) Advertising the quality of union/domestic products Lobbing government officials to increase demand - ex) Teachers Union Petitions governor to increase spending Increase the price of substitute resources - ex)Union support increases in minimum wage to unemployment are less
likely to work non noon workers

- Why is Globalization Happening? "6

Friday, November 1, 2013 Globalization is the result of firms seeking lowest costs. Firms are
seeking greater profits

parts are made in China because labor is significantly cheaper - Advantages Lower prices for nearly all goods and services decreases world unemployment improves quality of life and decreases poverty in less developed countries - Disadvantages Increasing US unemployment less US tax revenue generated from workers and corporations means less
public benefits

Foreign workers dont receive same protections as US workers - The Union is successful in requiring that new teachers pass a competency test to be employed (Supply decreasesshift up/left, so MC/MRC has to shift left too) The Labor union advertising to get people to buy union products (Demand Increase) The Union educates workers in new methods of production (Demand Increase)or Supply Decrease(but not in this case) The union gets tariffs placed on foreign products(Demand Increase) The labor bargains and wins an increase in the wage rage above equilibrium(nothing changes just move wage up higher, but nothing shifts) The labor union signs an agreement that implorers can only hire union members (Supply Decrease & MC/MRC decrease)

"7