Economics 2302 Chapter 14: The Demand and Supply of Resources

Keith will need to compare the (1) to the (2) he pays each employee. If the cost to hire an employee is less than the revenue that employee can produce, Keith should (3) hiring employees because he will continue to be (4).

1. value of the marginal product of labor 2. wage 3. continue 4. profitable

When will there be a labor surplus? Order the industries from most likely to have a surplus to least likely to have one.

Industry C, where new regulations have led to expand employee benefits and high wages Industry B, which has more or less regained equilibrium after a period of upheaval Industry A, where firms need to quickly bring all jobs back from overseas, after outsourcing led to quality concerns

A company is evaluating the value of the marginal product per dollar spent across the three factors of production to make sure it is utilizing its resources efficiently. The firm discovers that it gets $100 in relative benefits from labor, $10 in relative benefits from land, and $70 in relative benefits from capital. Knowing this information, how should the company use its resources?

The company should decrease its use of land. The company should increase its use of labor.

Companies usually outsource because they can save money by using lower-cost labor.

True

If employees are more productive, their wages will likely be higher.

True

Jobs where the product or service is "non-essential" but is in high demand with a limited pool of qualified workers have higher wages than jobs where the product or service is "essential" but is in low demand and the worker qualifications are minimal.

True

Drag the appropriate labels to the part of the graph that illustrates their outcome.

it is difficult for workers to find jobs the supply and demand for labor are equal to each other. it is difficult for employers to find workers

Max owns a car repair facility. Derived demand exists for which of the following inputs to Max's facility?

skilled workers the garage space Max uses for car repair the land the shop sits on replacement car parts

Which arrow illustrates what happens to the labor supply, and to wages, in the market when the certification process for nurses is made more difficult?

supply curve shift to the left

Which arrow illustrates what happens to the labor supply, and to wages, in a country that sees an influx of engineers fleeing a nearby region that is in political turmoil?

supply curve shift to the right

Why might it not be in the best interests of a company to offer very high wages?

the company could suffer from a backward-bending labor supply curve

A plot of land close to the beach could earn its owners $300/day as a parking lot or $500/day as a campground. Calculate the weekly economic rent of using the land as a campground.

$1,400 ($500-$300= $200*7= $1,400)

Stephan owns a shirt factory. He sells each shirt for $50. Previously, he had 30 employees producing a total of 300 shirts daily. Then Stephan added 10 new employees and noted that production increased to 350 shirts per day. Calculate the value of the marginal product in the range of 30-40 employees.

$250

Akua's Paint Supply charges $15 per gallon of paint. Akua started with three employees, who together produced 40 gallons of paint a day. He recently hired a fourth worker, and production increased to 48 gallons of paint a day. If Akua pays each worker $50/day, what is his marginal profit for the fourth employee? Ignore the added cost of raw materials.

$70 (8 × $15) - $50 = $70

Paul earns $90/hour as a landscaper and usually works eight hours each day. Paul's employer offers him a $5 per hour raise if he will work his normal hours this Saturday. He is considering taking the day off to rest. What is Paul's opportunity cost of taking the day off from work?

$760 ($95*8=$760)

Grace owns a house. She can rent her house for two years to one tenant for a profit of $24,000 a year, or she can rent it to two tenants each year for a profit of $10,000 per tenant per year. Calculate the economic rent over the course of two years of renting to one tenant.

$8,000

When there (1), the demand for labor is low. A monopsonist is more likely to offer (2) wages because there are (3) firms competing for the workers' labor. The presence of a monopsonist (4) the demand for labor.

1. a single buyer 2. lower 3. no other 4. decreases

Demographic factors, such as (1), play an increasingly important role in the supply of labor. In the United States, for example, there are over (2) legal immigrants in the population. Migration patterns also affect the labor supply. While the U.S. population grows at an annual rate of approximately (3), some regions are growing more quickly than others. According to the most recent census, the 10 fastest-growing states were in the South or (4).

1. immigration 2. 40 million 3. 1% 4. west

If young people enter the workforce earlier, the supply of labor will (1), since there will be more people available to work and a higher labor force (2) rate. This represents a change in the supply of labor due to (3).

1. increase 2. participation 3. the changing composition of the workforce

A firm can determine whether or not it is using its resources efficiently by calculating the value of the (1) for each resource and dividing it by the (2) of that resource. This will tell the firm the (3) of each factor of production. The firm can then decide to increase or decrease its use of each factor of production. When the revenue per dollar spent is (4), the firm will be using its resources in the most efficient manner.

1. marginal product 2. cost 3. bang per buck 4. equal for all resources

Income is generated through the (1) of goods and services. In the United States, (2) of all income takes the form of wages and salaries. The remaining (3) goes to those who own the other factors of production, namely (4) and capital.

1. production 2. two-thirds 3. one-third 4. land

When demand for workers in a certain profession increases, wages will (1). When employers find it (2) to find employees, workers' wages will be higher. If the supply of workers is too high, wages will (3) until the market reaches (4). In short, an increase in labor demand puts (5) pressure on wages, while an increase in labor supply puts (6) pressure on wages.

1. rise 2. difficult 3. fall 4. equilibrium 5. upward 6. downward

Which situations illustrate the labor-leisure trade-off?

A company owner has to decide whether to spend the afternoon reviewing accounts or attending her daughter's softball game. A manual laborer has to decide whether to work extra hours or visit his mother in the hospital.

Identify each type of labor as having a high-value marginal product, as providing an essential service, or as neither.

A valet parking attendant at a local restaurant. - neither essential nor high-value marginal product A church custodian ensures that the facility remains clean and secure. - provides essential service An entrepreneur markets a very successful new game. - high-value marginal product

The initial labor supply curve is shown by S1 on this graph. Drag the appropriate label to the labor supply curve it describes. Millions of college students graduate from school and begin looking for a job. The working-age population of a state remains steady throughout the years. A city has an aging population, so more people retire each year than enter the workforce.

A- S2 B - S1 C- S3

Select the situations that shift the supply of labor.

An economic downturn causes a city to lose 3% of its population. A small town sees its population increase drastically.

What is the definition of derived demand?

Demand for goods and services that are factors of production for other goods and services

What is the status of the labor market leading to the outcomes listed below? Match each situation to the supply of labor that likely exists for that particular industry.

Fast-food restaurants pay minimum wage and do not offer significant raises. - surplus A university ceases to offer full scholarships for middle school teacher education programs. - surplus A hospital increases the number of training programs available to new doctors. - shortage Universities decide to increase the wages offered to math professors. - shortage

What might delay a market's return to equilibrium if there is a shortage of workers?

It may take several years to train new workers to join a particular industry. It may take several years for wages to increase to entice workers to join the field.

Jamison received a raise at work and had the option to cut back his hours from 40/week to 35/week. He chose not to reduce his hours. Why might he have made this decision?

Jamison was influenced by the substitution effect. The opportunity costs of not working were too high.

Shoshanna owns a hair salon. She starts with one employee and hires a second a week after she opens. Shoshanna notices that after hiring the first and second worker, her total output increases and her marginal profit from each of these two employees is positive. Will it always be beneficial for Shoshanna to continually hire more employees?

No. At some point, adding more employees no longer increases profit.

New technology opens up new possibilities for tapping shale oil reserves in rural North Dakota. Drag the labels to illustrate how demand for land above oil shale deposits will change and what will happen to the price of the land.

P1- price before oil discovery P2- price after oil discovery D1- demand before oil discovery D2- demand after oil discovery

Sunny wants to rent a beachfront cottage and is trying to decide between a summer date and an off-season date. Which aspects of Sunny's situation can be illustrated with this graph?

Rental rates are higher in the summer than in the off season. Demand is higher in the summer than during the off season. The supply of rental units does not depend on the season.

Which of the following scenarios could lower a firm's demand for labor?

Rex invests in new computer software that will automate his bookkeeping. James operates a restaurant in a seaside tourist town. It is winter and all the tourists have left. Amy must pay more money to obtain the wood needed to construct chairs at her factory.

Match each term to the situation it describes.

Steve notices that most of his employees choose not to work overtime. - income effect After a raise, Carla sees her part-time job as more worthwhile and asks to work more hours. - substitution effect Amy decides the opportunity cost of taking time off work is too high for her. - substitution effect Eddie feels he earns enough money and decides to cut back on his hours. - income effect

Which of these statements about the long-term implications of outsourcing are correct?

The social welfare of all nations involved in outsourcing improves. Outsourcing can improve efficiency.

Which of the following is an example of monopsony?

a lone general store in a small, isolated town

Consider factors that cause the price of land to be high. Order the examples of land from lowest price to highest.

a plot of undeveloped land far from major urban centers. a plot of land in the business district of a major city. a beachfront plot of land on a private island in the Caribbean.

How does the demand for labor change? Order the situations from lowest demand for labor to highest demand for labor.

a pumpkin farm the day after Halloween a restaurant on a Wednesday night a snow-removal service the day after a blizzard

For an organic farm with an on-site sales stand, label each factor of production as land, labor, or capital.

crew to plant, fertilize, and harvest - labor seeds - capital cultivated field - land irrigation system - capital sales team - labor transport truck - capital

Which arrow illustrates what happens to labor demand, and to wages, in India when jobs in the publishing industry are outsourced to India from Europe and the United States?

demand curve shifts right

Which arrow illustrates what happens to U.S. labor demand, and to wages, when call center jobs are outsourced to another country?

demand shift to the left

In the long run, it hurts the economy when employees lose their jobs because of technology.

false

It always makes sense for a firm to invest in new capital.

false

When outsourcing happens, the firm that outsources labor benefits while the rest of the economy suffers in the long run.

false

Jennifer runs a landscaping business. She is about to buy a new mower that she expects will last her three years. Compared to model A, which is similar to the mower Jennifer is currently using, model B costs $1,500 more but will save about $200 in gas each year. It will also allow her to earn $10 more each week because it mows faster, which allows her to work on more lawns. Which model should Jennifer buy, and why?

model B, because it will improve Jennifer's bottom line by $660 over three years

Place the workers in order of likely annual earnings beginning with the highest.

the star of a hit tv show a U.S. army general a minor-league baseball player a parking lot attendant

Jermaine's boat factory recently outsourced its boat production from City A to City B. What could be a short-term consequence of outsourcing production?

workers who worked in city A's boat factory will be unemployed