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CHAPTER TWENTY-SEVEN THE DEMAND FOR RESOURCES INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to: 1. Present four major reasons for studying resource pricing. 2. Explain the concept of derived demand as it applies to resource demand. 3. Explain marginal-revenue product and marginal-resource cost. 4. Determine the marginal-revenue-product schedule for an input when given appropriate data. 5. State the principle employed by a profit-maximizing firm to determine how much of a resource it will employ. 6. Apply the MRC = MRP principle to find the quantity of a resource a firm will employ when given the necessary data. 7. Explain why the MRP schedule of a resource is the firm’s demand schedule for the resource in competitive resource markets. 8. List three factors that would change a firm’s resource demand, and predict the effect of a change in each of these factors on the demand for the resource. 9. List four determinants of the price-elasticity of demand for a resource, and state how changes in each would affect the elasticity of demand for the resource. 10. State the rule for determining the least-cost combination of resources. 11. Find the least-cost combination of resources when given appropriate data. 12. State the rule used by a profit-maximizing firm to determine how much of each of several resources to employ. 13. When given necessary data, find the quantities of two or more resources a profit-maximizing firm will hire. 14. Explain the marginal productivity theory of income distribution and present two criticisms of it. 15. Define and identify terms and concepts listed at the end of the chapter. LECTURE NOTES I. Resource Pricing A. Recall that resources must be used by all firms in producing their goods or services; the prices of these resources will determine the costs of production. B. Significance of resource pricing: 1. Money incomes are determined by resources supplied. In other words, firm expenditures eventually flow back to the household in the form of wages, rent, and interest. 2. Resource prices determine resource allocation. 3. Resource prices are factor costs, and firms try to minimize these costs in production. 4. There are policy issues concerning income distribution: 341
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The Demand for Resources a. Income tax and subsidy issues, b. Minimum wage laws, c. Interest rate ceilings, d. Agricultural subsidies, and e. Income distribution (Chapter 34). II.
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