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Perloff_397614_IM_Ch15 - Chapter 15 Factor Markets Chapter...

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Chapter 15 Factor Markets Chapter Outline 15.1 Competitive Factor Market Firm’s Short-Run Factor Demand Firm’s Long-Run Factor Demand Factor-Market Demand Competitive Factor Market Equilibrium 15.2 Noncompetitive Factor Market 15.3 Monopsony Monopsony Profit Maximization Welfare Effects of Monopsony 15.4 Capital Markets and Investing Interest Rates Discount Rate Stream of Payments Investing Durability Human Capital Time-Varying Discounting 15.5 Exhaustible Resources When to Sell an Exhaustible Resource Price of Scarce Exhaustible Resource Why Price May Be Constant or Fall Teaching Tips Chapter 15 can be covered any time after Chapter 11. Section 15.1 on competitive factor markets can be covered any time after Chapter 8. You might consider this option if your primary goal is to give maximum exposure to the competitive model. Students typically don’t have much trouble with competitive factor markets. It makes intuitive sense that as long as a worker adds more value in output than their wage, they should be hired. The only point that may require clarification is the difference between the marginal worker and the infra-marginal workers. Students may need to be reminded of diminishing returns that cause MP L to fall, and that only the last worker’s marginal revenue product is equal to the wage.
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204 Perloff • Microeconomics: Theory and Applications with Calculus Factor markets in monopolized industries and monopsony follow fairly easily from the competitive model, and can be covered in a single class session. The most straightforward presentation is to simply compare factor demands when the output market is competitive versus when the output market is a monopoly. If most students have already taken a course in finance, then you can probably skip most of Section 15.4 and concentrate on the internal rate of return material as it relates to the investment in human and physical capital. If not, you will need to begin with the time value of money. This is a topic that most students have thought surprisingly little about. You might point this out to the class by asking them about their own behavior (college students, as a group, tend to be somewhat myopic). If your department does not have a finance requirement, students are likely to receive little formal exposure to this topic. You might begin the discussion by trying to get the class to state the important difference between durable and nondurable goods. Stock and flow variables are distinguished by whether they provide a one-time service (or utility), or a stream of services over a period of time. Once the class is comfortable with the concept of a capital good, you can ask them how the decision to purchase such a good should be made. You might frame the discussion by asking if the U.S. government should expense all government expenditures in the current period when calculating the budget deficit. If your school has any substantial capital projects under way, you can frame the question with respect to school’s budget process. The trail of the discussion
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Perloff_397614_IM_Ch15 - Chapter 15 Factor Markets Chapter...

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