Unit 5: The Resource Market(aka: The Factor Market or Input Market)*

Review

Who demands in the Resource Market?Who supplies in the Resource Market?Define Derived DemandThe demand for resources is determined (derived) by the products they help produce.4. Identify the Shifters of Resource DemandDerived DemandProductivity of the ResourcesPrice of related resources

Use side-by-side graphs to draw a perfectly competitive labor market and firm hiring workers*

SLDLWageQWageQIndustryFirmQEWEQeDL=MRPSL=MRCWage is set by the marketDemand/MRP falls

SLDLWageQWageQIndustryFirmQEWEQeDL=MRPSL=MRCWhat happens to the wage and quantity in the market and firm if new workers enter the industry?

SLDLWageQWageQIndustryFirmQEWEQeDL=MRPSL=MRCWhat happens to the wage and quantity in the market and firm if new workers enter the industry?SL1W1Q1SL1=MRC1Q1

Minimum WageAssume the government was interest in increasing the federal minimum wage to $15 an hourDo you support this new law? Why or why not*

SWageQ LaborDFast Food Cooks$15

$8

$6The government wants to help workers because the equilibrium wage is too low*5 6 7 8 9 10 11 12

SWageQ LaborDFast Food Cooks Government sets up a WAGE FLOOR.Where?*$15

$8

$65 6 7 8 9 10 11 12

SWageQ LaborDMinimum Wage Above Equilibrium!*$15

$8

$65 6 7 8 9 10 11 12

SWageQ LaborDWhats the result?Q demanded falls.

Q supplied increases.*$15

$8

$65 6 7 8 9 10 11 12Surplus of workers(Unemployment)Minimum Wage

Is increasing minimum wage good or bad?

GOOD IDEA-We dont want poor people living in the street, so we should make sure they have enough to live on.

BAD IDEA-Increasing minimum wage too much leads to more unemployment and higher prices.*

Minimum Wage Worksheet*

Combining Resources Up to this point we have analyzed the use of only one resource.What about when a firm wants to combine different resources?

Least Cost RuleIf you only have $35, what combination of robots and workers will maximize output?$10$5How much additional output does each resource generate per dollar spent?

# Times GoingMP(Robots)MP/PR(PriceR =$10)MP (Workers)MP/PW(PriceW =$5)1st3032042nd2021533rd1011024th5.5051

Least Cost RuleIf you only have $35, the best combination is 2 robots and 3 workers$10MPx = MPyPx Py$5Resource xResource y

# Times GoingMP(Robots)MP/PR(PriceR =$10)MP (Workers)MP/PW(PriceW =$5)1st3032042nd2021533rd1011024th5.5051

Profit Maximizing Rule for a Combing Resources MRPx = MRPy =MRCx MRCy1This means that the firm is hiring where MRP = MRC for each resource x and y

Practice: What should the firm do hire more, hire less, or stay put?1. MRPL = $15; PL = $6; MRPC = $10; PC = $102. MRPL = $5; PL = $10; MRPC = $10; PC = $153. MRPL = $25; PL = $20; MRPC = $15; PC = $154. MRPL = $12; PL = $12; MRPC = $50; PC = $405. MRPL = $20; PL = $15; MRPC = $100; PC =$40

MORELESSSTAY PUTMOREMOREMOREMORESTAY PUTSTAY PUTLESS

2010 Practice FRQ*

3 apples and 2 oranges