The Demand for Resources
ANSWERS TO END-OF-CHAPTER QUESTIONS
What is the significance of resource pricing?
Explain how the factors determining resource
demand differ from those determining product demand.
Explain the meaning and significance of
the fact that the demand for a resource is a derived
Why do resource demand curves
All resources that enter into production are owned by someone, including the most important
resource of all for most people, self-owned labor.
The most basic significance of resource pricing
is that it largely determines people’s incomes.
Resource pricing allocates scarce resources among
Firms take account of the prices of resources in deciding how best to attain
Finally, resource pricing has a great deal to do with income inequality and the debate as to what
government should or should not do to lessen this inequality.
It is here that the factors that
determine resource demand are most different from those that determine demand for products.
Demand for products is a question of income and tastes.
But resource demand is more passive in
the sense that it is derived from the demand for the products the resource can produce.
resource can’t be used in production of a desired product, there will not be any demand for it.
Additionally, resources are often less mobile than products, so their geographic location relative
to demand for the output they produce may be an important factor determining demand for
resources in particular geographic areas.
Resources, factors of production, are not hired or bought because their employer or buyer desires
them for themselves.
The demand for resources is entirely derived from what the firm believes
the resources can produce.
If there were no demand for output, there would be no demand for
The demand for a resource depends, then, on how productive it is in producing output and on the
price of the output.
The demand for a resource is downward sloping because of the diminishing
marginal product of the resource (because of the law of diminishing returns) and, in imperfectly
competitive markets, also because the greater the output, the lower its price.
Complete the following labor demand table for a firm that is hiring labor
competitively and selling its product in a competitive market.