101chapter10

101chapter10 - Chapter 10: Pricing in Resource Markets...

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Chapter 10: Pricing in Resource Chapter 10: Pricing in Resource Markets Markets Resource markets Resource demand The labor market
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Factor/Resource markets Factor/Resource markets Factors of production: land labor capital entrepreneurship factor prices determined in resource markets
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resources markets resources markets same concepts of demand and supply now applied to factors of production
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resource demand resource demand producer will demand an additional unit of resource if MR of resource > MC of resource
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example: Wal Mart example: Wal Mart labor market 1 more clerk costs $400 per week 1 more clerk increases revenue by $500 week hire 1 more clerk? Yes! $500 > $400
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example: lawn service example: lawn service capital market larger, faster mower costs extra $400/wk. but mow more lawns, extra $600/wk. in revenue buy the mower? Yes! $600 > $400
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terms terms marginal revenue product (MRP) extra revenue from one more unit of resource marginal resource cost (MRC) extra cost for one more unit of resource
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rule for resource demand rule for resource demand firm hires additional resources until MRC = MRP cost of the extra resource = extra revenue from the resource
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resource supply resource supply you will supply your resources to the “best” option highest paying (if all else equal) nonmonetary factors are important firms must compensate when jobs are dirty, dangerous, illegal…. .
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The Market for Resources The Market for Resources resource demand downward sloping producers less willing, able to buy resources at higher prices
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resource demand is a DERIVED demand it depends on the demand for the final product
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examples examples demand for nurses depends on demand for healthcare demand for steel depends on demand for cars demand for plywood depends on demand for houses
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Shifts in demand for a resource Shifts in demand for a resource demand for final product
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This document was uploaded on 06/18/2011.

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101chapter10 - Chapter 10: Pricing in Resource Markets...

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