ch 16

Question 1

Derived Demand

Answer 1

Demand for a single resource depends on the demand for the goods and services it can produce. Market Demand for a Resource is the sum of demand schedules of all firms using the resource
Depends on productivity of resource and market price of product

Question 2

Marginal Revenue Product (MRP

Answer 2

Increase in total revenue that results from the use of each additional unit of a variable input
___Change in Total Revenue___
Change in Resource Quantity

Question 3

Marginal Resource Cost (MRC)

Answer 3

Cost of hiring an additional resource
Change in Total Resource Cost___
Change in Resource Quantity

Question 4

MRP = MRC Rule for Employing Resources

Answer 4

To Maximize Profits, a firm should hire additional resources as long as each unit adds more to revenue than it does to costs. MRP will be the firm’s resource (labor) demand schedule in a competitive resource market because the firm will hire (demand) the number of resource units where their MRP = MRC

Question 5

Change in Product Demand

Answer 5

produces change in demand of a firm for a resource in the same direction

• Increase in product demand, demand increases
• Decrease in product demand, demand decreases

Question 6

Change in Resource Productivity

Answer 6

change firm’s demand for a resource in the same direction
A. Quantity of Other Resources
B. Quality of the Variable Resources
C. Technological Advance
- Increase in productivity, demand increases
- Decrease in productivity, demand decreases

Question 7

Change in the Price of Complementary Resources

Answer 7

(In production the resources are combined – you need both a machine and worker)
Changes Demand for a current resource in the opposite direction
- Increase in price, demand decreases
- Decrease in price, increase in demand

Question 8

Substitution Effect

Answer 8

Demand for current resource changes in Same Direction

i. Increase in price, demand increases
ii. Decrease in price, demand decreases

Question 9

Output Effect

Answer 9

Demand for current resource changes in Opposite Direction

i. Increase in price, demand decreases
ii. Decrease in price, demand increases

Question 10

Ease of Resource Substitutability

Answer 10

More Substitutes – Elastic; Few Substitutes– Inelastic)

Question 10

Elasticity of Product Demand

Answer 10

(Elastic Product – Elastic; Inelastic Product – Inelastic

Question 10

Ratio of Resource Cost to Total Cost

Answer 10

(Larger Cost – Elastic; Smaller Cost – Inelastic)