Chapter 16: the demand for resources

To maximize profit, a firm should add additional units of a specific resource as long as each successive unit adds more to the firm's total ______ than it adds to the firm's total ___________ . (Enter one word in each blank.)

Blank 1: revenue or revenues Blank 2: cost or costs

Resource prices are a major factor in determining households'

incomes

Changes in quantity of a resource demanded are caused by a change in the

price of a specific resource

In a purely competitive labor market, market supply and market demand establish

the wagerate

True or false: The level of derived demand for a good or service used in the production of other goods and services is based upon that input's level of productivity in helping reduce the cost of producing the finished product.

true: Inputs used in production that lower the cost of a product will have the effect of increasing derived demand for those productive inputs.

least-cost combination of resources

when the last dollar spent yields the same marginal product.

Changes in price of substitute resources

- Substitution effect - Output effect - Net effect

productivity of any resource may be altered over the long run in several ways

-Quantities of other resources -technological advances -the quality of the variable resource

the following exemplifies the substitution effect in regard to substitute resources?

A decline in the price of machinery prompts a firm to substitute machinery for labor, allowing it to produce output at the lower cost of machinery.

the following is an example of the substitution effect in regard to substitute resources?

A firm can produce some specific amount of output using a relatively small amount of labor and a relatively large amount of capital or vice versa.

elasticity of resource demand

A measure of the responsiveness of firms to a change in the price of a particular resource they employ or use; the percentage change in the quantity of the resource demanded divided by the percentage change in its price.

If a person agrees that resources should be paid based upon the value of their creation, then income payments based on marginal revenue product provide a fair and _______ distribution of society's income.

Blank 1: equitable, equitible, or equal

In the resource market, the output effect means that a firm will purchase_______________ of one particular input when the price of the other input falls and ______________ of that particular input when the price of the other input rises.

Blank 1: more Blank 2: less

When the sale of a firm's total output of a product in a purely competitive product market has no effect on the market price, this makes the firm a ___________ ________________

Blank 1: price Blank 2: taker

The marginal of any resource will vary with the of other resources used with it. (Enter one word per blank.)

Blank 1: productivity or product Blank 2: quantities , amount, quality, or quantity

In the figure, an increase in the wage rate (price) from $5 to $7 on the MRP = D curve has been caused by a change in the ___________ ___________ at different wage rates rather than a distinct change in ___________ for labor causing the MRP = D curve to shift. (Enter one word for each blank)

Blank 1: quantity Blank 2: demanded Blank 3: demand

marginal revenue product (MRP)

Change in total revenue resulting from unit change in resource input (labor)

What is used to measure the sensitivity of resource quantity to changes in resource prices along a fixed resource demand curve?

Elasticity of resource demand

elasticity of resource demand

Erd > 1 Resource demand is elastic. Erd< 1 Resource demand is inelastic. Erd= 1 Resource demand is unit-elastic.

f the following is true about the marginal productivity of any resource?

It will vary with the quantities of other resources used with it

MRP=MRC

MRP= schedule equals the firm's demand for labor MRC= exactly equal to wage rate

marginal product of labor (MP(L))/ price of labor (P(L))=

Marginal product of capital (MP(c))/ price of capital (P(c))

What is it called when income is distributed in society according to the contribution of the resource to society's output?

Marginal productivity theory of income distribution

elasticity of resource demand=

Percentage change in resource quantity/percentage change in resource price

What can shift the resource demand curve?

Prices of other resources Product demand Resource productivity

Why is a purely competitive seller's resource demand curve more elastic than an imperfectly competitive seller operating in a monopoly, oligopoly, or monopolistic competition?

Sellers in imperfect competition must lower prices to sell more, thus expanding labor by a lower percentage than purely competitive sellers.

the following infers the direction of the change in the demand for resource labor due to a change in capital?

The direction of the change in labor demand will depend on whether labor and capital are substitutes or complements in production

The strength of the demand for any resource will depend on:

The resource's productivity in helping to create a good or service The market value of price of the good or service it helps to produce.

net effect

The substitution and output effects are both present when the price of an input changes, but they work in opposite directions

What curve shows the various total amounts of the resource that firms will purchase or hire at various resource prices?

The total, or market demand curve for a specific resource

Unlike the least-cost rule where as long as the ratios of both equations are the same and equal (ex. 20/4 = 10/2 = 5/1 = 5), when the ratio between the two equations for the profit-maximizing rule each always equal 1 (ex. 10/10 = 5/5), then the purely competitive firm has

achieved profit maximization

changes in product demand

an increase in the demand for a product will increase the demand for a resource used in its production, whereas a decrease in product demand will decrease the demand for that resource.

marginal revenue product=

change in total revenue/unit change in resource quantity

factors that increase or decrease resource demand

changes in product demand resource productivity and a potential third being prices of other resources

Derived demand

demand for a resource that depends on the demand for the products it helps to produce

Because resource demand is derived from product demand, the strength of the demand for any resource will depend on the

demand for the good or service it helps produce market value or price of the good or service it helps produce productivity of the resource in helping to create a good or service

The level of substitutability of a resource is a primary

determinant of resource elasticity

Ease of substitutability, elasticity of product demand and the ratio of resource cost to total cost are all factors that

determine the elasticity of resource demand

The resource demand curve of a purely competitive seller is downward sloping because the marginal product of the resource Blank______, whereas the resource demand curve of an imperfectly competitive sellers is downward sloping because the marginal product diminishes and Blank______.

diminishes; product price falls as output is increased

Profit Maximizing Rule

each resource is employed to the point where its MRP is equal to its price MRP=P and MRP= P(c) combine into MRP(L)/P(L)=MRP(c)/P(c)=1

There is an increase rising employment in the

health and fitness services

The expenditures that firms incur in acquiring economic resources flow to households in the form of

interest rent wages profit

The resource demand curve of an imperfectly competitive seller is downward sloping because

marginal product diminishes and product price falls as output is increased.

A change in quantity of a resource demanded is represented by

movement from one point to another on a fixed resource demand curve

Changes in product demand

other things equal, an increase in the demand for a product will increase the demand for a resource used in its production, whereas a decrease in product demand will decrease the demand for that resource

The derived demand for an input will rise when it is highly productive in

reducing the costs to produce a product producing a highly valued commodity

The degree to which resources are ________is a fundamental determinant of elasticity.

substitutable

In a competitive resource market, a firm is a price

taker

declining employment

telephone operators parking enforcement workers

substitution effect

the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes

The market demand for a product is

the horizontal sum of the demand curves of all the buyers in the market.

marginal productivity theory of income distribution

the hypothesis that the wage rate paid to labor will tend to equal the marginal revenue product of labor

The figure illustrates that the imperfectly competitive seller's downward slope is greater than that of a purely competitive seller's because

the imperfectly competitive seller sells added output at lower prices making the resource demand curve less elastic the pure competitor can sell added output at a constant price making the resource demand curve more elastic

The resource demand curve of a purely competitive seller is downward sloping solely because

the marginal product of the resources diminishes

output effect

the possibility that when the price of the first of a pair of substitute resources falls, the quantity demanded of both resources will rise because the reduction in the price of the first resource so greatly reduces production costs that the volume of output created with the two resources increases by so much that the quantity demanded of the second resource increases even after accounting for the substitution effect