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Chapter 14 lecture notes and ppt notes

by: Danyn Notetaker

Chapter 14 lecture notes and ppt notes ECON 1010

Marketplace > Tulane University > Economcs > ECON 1010 > Chapter 14 lecture notes and ppt notes
Danyn Notetaker

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Powerpoint info and lecture notes
Armine Shahoyan
Class Notes
Microeconomic, McGraw Hill
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This 2 page Class Notes was uploaded by Danyn Notetaker on Sunday May 1, 2016. The Class Notes belongs to ECON 1010 at Tulane University taught by Armine Shahoyan in Summer 2015. Since its upload, it has received 29 views. For similar materials see Microeconomics in Economcs at Tulane University.


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Date Created: 05/01/16
Resource Pricing - Resources must be used by all forms in producing their goods and services - Significances pf resource pricing: • Money incomes are determined by resources supplied by the households • Resources prices are input costs, forms try to minimize these costs to achieve productive efficiency and profit maximization • Resource prices determine rescue allocation • There are many police issues concerning income distribution - Income distribution - income tax issue - minimum wage law - Agricultural subsidies Marginal productivity Theory of Resource Demand - Definition: assuming that a firm sells its product in a purely competitive product market and hires its resources in a purely competitive rescue market - Resource demand is derived from demand for products that the resources produce - The demand for a resource is dependent upon: • Productivity of the resource • The market price of the product being produced - Tule for employing resources is to produce where MRP=MRC • To maximize profits, firm should hire additional units of a resource as long as each unit adds more to the TR than TC • MRC = changing TRC/change in resource Quantity • Under conditions of pure competition in the labor market where the firm is a ‘wage taker’, wage = MRC MRP will be the firms resource (labor) labor demand schedule in a competitive resource • market because the firm will higher (demand) the number of resource units where MRC=MRP - MRP = change in TR/change in resource quantity - MRP of imperfectly competitive seller falls for two reasons: MP dimities as in pure competition, and product price falls as output increases - Market demand for a resource will be the same of the individual firm demand curves for that resource Determinants of Resource Demand - Changes in product demand will shift the demand for the resource produce it - Productivity changes will shift the demand ion same direction • The productivity of any resource can be altered in several ways 1. Quantities of other resources 2. Technical progress 3. Quantity of variable resource - Prices of other resources will affect resource demand • A change in price of substitute resource has two opposite effects - Substitution effect: lower machine prices decrease demand for labor - Output effect: lower machine prices lower output costs, raises equilibrium output and increase in demand for labor - These two effects work in opposite directions — the net effect demand on the magnitude of each effect • Change in the price of complementary resource causes a change in demand for the current resource in the opposite direction - Occupational employment tends • Changes in labor demand will affect occupational wage rates and employment • Discussion of most rapidly growing occupations • Discussion of most rapidly declining occupations Elasticity of Resource Demand - Elasticity of resource demand is affected by several facts - Formula of elasticity of resource demand: % change in quantity Erd = % change in Price - If Erd is greater than 1, the demand is elastic; if Erd is less than 1 demand is inelastic; if Erd is equal to 1 it is unit elastic - Determinants of elasticity of demand • Ease of resource substitution: the easier is it to substitute, the more elastic the demand for a specific resource • Elasticity of product demand: the more elastic the print demand, the more elastic the demand for its productive resources • Resource/Total cost ratio: the greater the proportion of TC determined buy a resource the more elastic its demand Optimal Combination of Resources - Two questions are considered • What is the Least-cost combination of resources to use in procuring any given output • What combination of resources will maximize a firms profits - The least cost rule states that costs are minimized where the MP per dollar’s worth of each resource is the same • Minimum cost of producing a given output • Last dollar spent on each resource yields the same MP • Marginal Product of Labor (MPL) / Price of Labor (PL) = Marginal Product of Capital (MPC) / Price of Labor (Pc) • LR cost curves assume that each level of output is being being produced with the least- cost combination of input The least-cost production tule is analogous to utility-maximizing combination - The profit maximizing rule states the in a competitive market, the price of the resource must = MRP • Each resource is employed to the point where its MRP is equal to the price PL=MRPL and PC=MRPC Marginal Productivity Theory: Income Distribution - ‘To each according to what he/she creates’ is the rule - There are criticisms • Leads to inequality, and many resources are distributed unequally in the first place • Monopsony and monopoly interfere with competitive market results with regard to price of products and resources - A recent real-world example of firms using the least-cos combination on inputs is in the banking industry, using ATMs rather than tellers.


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