Unit 5 - Resource market

Question 1

Derived demand

Answer 1

The demand for resources is determined by the products they produce

Question 2

Minimum wage

Answer 2

Minimum wage is a binding floor.
If the wage/price goes up the quantity demanded goes down and quantity supplied increases.

Question 3

MRP and MRC

Answer 3

Marginal revenue product - the additional revenue generated by an additional worker (resource)

Marginal revenue cost - The additional cost of an additional resource (worker)

Hire where MRP = MRC

Question 4

What is a monopsony?

Answer 4

A monpsnoy is a monopoly for labour.

The workers who provide the type of labor needed have few employment options other than working for the monopsony, maybe because they are geographically immobile or their skills are not transferable to other jobs. This makes the firm a “wage maker,” meaning that the wage rate it must pay varies directly with the number of workers available. In this case, the firm’s labor supply curve will be upward-sloping and the MRC will be higher than the wage rate. To maximize profit, the monopsonist will employ the quantity of labor at which MRC and MRP are equal.

Question 5

Union models

Answer 5

In some labor markets, workers unionize and sell their labor service collectively. Their attempts to raise wage rates are concentrated on the supply side of the labor market.

Craft & industrial union models