2023Ch12SumMcBr - Resource Markets Chapter 12 Outline...

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Resource Markets Chapter 12
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Outline Buyers and sellers of resources The market demand for resources The elasticity of demand for resources The market supply of resources The elasticity of supply for resources Equilibrium, shortages and surpluses Price ceilings and floors Resource market models Resource use under prefect competition Resource use under imperfect competition The least cost combination principle Most profitable combination principle
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Buyers and sellers of resources In microeconomics firms are analyzed in the resource market as well as the product market. In the product market we looked at four market models (perfect competition, monopoly, monopolistic competition and oligopoly) with the goal of determining the most profitable level of output for a representative firm in each model. Our analysis in the resource market will be similar. The principles will be the same, but the terms and models, although similar, are labeled differently (for the most part). Recalling the circular flow model, in the resource market firms are the buyers of the resources and households are the sellers. In terms of demand and supply, firms affect the demand for resources; households, the supply of resources.
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The market demand for resources Resource demand is a derived demand. It is derived from the demand for products. For example, if the demand for jeans increases, the demand for cotton fabric will also increase. If the demand for new homes decreases, the demand for lumber to make those homes will also decrease. Many factors influence the demand for resources, however, especially the price of the resource itself. If the price of a resource decreases, the quantity demanded of that resource will increase. If the price of a resource increases, the quantity demanded of that resource will decrease. Thus, the law of demand applies to resources just like it did for products.
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Changes in resource demand The quantity demanded of a resource is influenced by the price of that resource. Other factors influence the demand so that the curve either shifts to the right or to the left. As already mentioned with the concept of derived demand, if consumers buy more of a product, then more resources are needed to produce that product. If the economy expands and consumers increase their demand for automobiles, the demand for automobile workers will increase as well. In this case, the demand for automobile workers will shift to the right. If in a recession building construction declines, then the demand for construction workers will also decline and shift to the left.
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Changes in resource demand (continued) Productivity is another factor that influences resource demand. When resources become more productive, demand increases for those resources. When resources become less productive, demand for those resources will decrease. Resources may be substitutes for one another.
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2023Ch12SumMcBr - Resource Markets Chapter 12 Outline...

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