The Demand for Resources Resource Pricing Firms demand resources Focus on labor Resource prices are important Money-income determination Cost minimization Resource allocation Policy issues LO - Resource Demand All markets are competitive (good and resource) Derived demand depends on: Productivity of resource (MP) Price of the good it helps produce (P) revenue product (MRP) Change in TR resulting from unit change in resource (labor) LO -
Resource Demand Rule for employing resources: MRP = MRC Revenue Product (MRP) Revenue = Product Resource = Cost Change in Total Revenue Unit Change in Resource Quantity Resource Cost (MRC) Change in Total (Resource) Cost Unit Change in Resource Quantity LO - MRP as Resource Demand () Units of Resource () Total Product (Output) 8 8 () Product (MP) $8 () Product Price $ () Total Revenue, () X () $ () Revenue Product (MRP) $ 8 Purely Competitive 8 Firm s Demand for D=MRP A Resource - Quantity of Resource Demanded LO - Resource Wage (Wage Rate) MRP as Resource Demand () Units of Resource () Total Product (Output) () Product (MP) () Product Price () Total Revenue, () X () () Revenue Product (MRP) 8 8 $.8.....8.. $. 8.. 9..... $8.. 8.... -. Imperfectly Competitive Firm s Demand for A Resource Resource Wage (Wage Rate) $8 8 D=MRP (Pure Competition) D=MRP (Imperfect Competition) - Quantity of Resource Demanded LO -
Determinants of Resource Demand Changes in product demand Changes in productivity Quantities of other resources Technological advance Quality of the variable resource LO - Determinants of Resource Demand Changes in the price of substitute resources Substitution effect Output effect Net effect Changes in the price of complementary resources LO -8 Determinants of Resource Demand LO -9
Occupational Employment Trends Rising employment Services Health care Computers Declining employment Labor saving technological change Textiles LO - Employment Trends Fastest-Growing U.S. Occupations in Percentage Terms, 8-8 Employment, Thousands of Jobs Percentage Occupation 8 8 Increase* Biomedical engineers 8. Network Systems and data communications analysts 9 8. Home health aides 9 8. Personal and home care aides 8 9. Financial examiners 8. Medical scientists, except epidemiologists 9. Physicians assistants 9. Skin care specialists 9.9 Biochemists and biophysicists. Athletic trainers. Source: Bureau of Labor Statistics, http://www.bls.gov LO - Employment Trends Most Rapidly Declining U.S. Occupations in Percentage Terms, 8-8 Employment, Thousands of Jobs Percentage Occupation 8 8 Increase* Textile machine workers -. Sewing machine operators -. Postal service workers 8 -. Lathe operators -. Order clerks 8 -. Photographic processing machine operators 9 -. File clerks -. Machine feeders and offbearers -. Paper goods machine setters operators, tenders 8 -. Computer operators 9-8. LO -
Elasticity of Resource Demand E rd = Percentage Change in Resource Quantity Percentage Change in Resource Price Ease of resource substitutability Elasticity of product demand Ratio of resource cost to total cost LO - Optimal Combination of Resources All resource inputs are variable Choose the optimal combination Minimize cost of producing a given output Maximize profit LO - The Least Cost Rule Minimize cost of producing a given output Last dollar spent on each resource yields the same marginal product Product Of Labor (MP L ) Price of Labor (P L ) = Product Of Capital (MP C ) Price of Capital (P C ) LO -
Profit Maximizing Rule MRP of each resource equals its price P L = MRP L and P C = MRP C MRP L P L MRP C = = P C LO - Income Distribution Paid according to value of service Workers Resource owners Inequality Productive resources unequally distributed Market imperfections LO - Income Distribution Numerical Illustration Data for finding the least-cost and profit-maximizing combination of labor and capital -8
Input Substitution: The Case of ATMs Banks use ATMs instead of people Least-cost combination of resources ATMs debuted about years ago billion U.S. transactions per year 8, tellers eliminated 99- Former tellers find new jobs Customer convenience LO -9