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Example 1:
If there was a significant increase in the demand for pizza, how would this affect the demand for cheese?
Cows? Milking Machines? Veterinarians? Vet
Schools? Etc.
Example 2:
An increase in the demand for cars increases the demand for…
Derived Demand-
The demand for resources is determined
(derived) by the products they help produce.
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Check In
Come up with your own example of derived demand.
Demand for ___ increased/decreased in the product market because ____. Therefore, demand for ___ increased/decreased in the product market because ____.
Additionally, demand for ___
increased/decreased in the product market because ____.
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Why do people with only high school degrees make less money on average?
Employers assume they have low productivity and will generate less additional revenue.
4

Does having an education mean that you will automatically have a higher income?
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Real Life Application
Top 5 Fastest Growing Jobs
(2000-2010)
1. Computer Software Engineers, Applications
2. Computer Support Specialists
3. Computer Software Engineers, Systems
4. Computer Systems Administrators
5. Data Communications Analyst
Top 5 Fastest Declining Jobs
1. Railroad Switch Operators
2. Shoe Machine Operators
3. Telephone Operators
4. Radio Mechanics
5. Loan Interviewers
WHY?
“You’ve got to learn computers!”
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Example 1:
If there was a significant increase in the demand for pizza, how would this affect the demand for cheese?
Cows? Milking Machines? Veterinarians? Vet
Schools? Etc.
Example 2:
An increase in the demand for cars increases the demand for…
Derived Demand-
The demand for resources is determined
(derived) by the products they help produce.
7

Check In
Come up with your own example of derived demand.
Demand for ___ increased/decreased in the product market because ____. Therefore, demand for ___ increased/decreased in the product market because ____.
Additionally, demand for ___
increased/decreased in the product market because ____.
8

Real Life Application
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Check In
Why do you think chemical engineers make significantly more money than housecleaners?
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The MRP of a resource equals the Demand.
11

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Yesterday's Activity
Units of
Labor
Total
Product
(Output)
Marginal
Product
(MP)
Product
Price
Price = $10
MRP
Wage = $20
5
6
3
4
7
0
1
2
24
27
29
30
27
0
7
17
1
-3
3
2
10
7
7
-
10
10
10
10
0
10
10
10
0
70
100
70
30
20
10
-30
Shows how many workers a firm is willing and able to hire at different wages.
13

Use the following data:
Units of
Labor
Total
Product
(Output)
Marginal
Product
(MP)
Product
Price
Price = $10
MRP
Wage = $20
5
6
3
4
7
0
1
2
24
27
29
30
27
0
7
17
1
-3
3
2
10
7
7
-
10
10
10
10
0
10
10
10
0
70
100
70
30
20
10
-30
Demand for this resource
Plotting the MRP/Demand curve
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$100
80
60
40
Wage Rate Why is it downward sloping?
Because of the law of diminishing marginal returns
Each additional resource is less productive and therefore is worth less than the previous one
20
D=MRP
1 2 3 4 5 6 7 8
Quantity of Workers
Q
15

Wage Rate
$100
80
60
This model applies to land, labor, and capital
Notice the inverse relationship between wage and quantity of resources demand
40
20
D=MRP
1 2 3 4 5 6 7 8
Quantity of Workers
Q
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What happens if demand for the product increases?
Wage Rate
$100
80 MRP increases causing demand to shift right
60
40
20
D
1
=MRP
1
D=MRP
1 2 3 4 5 6 7 8
Quantity of Workers
Q
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Check In
What were some shifters of demand in the product market?
What do you think might cause demand for labor to shift in the resource market?
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3 Shifters of Resource Demand
1.) Changes in the Demand for the Product
•
Price increase of the product increases MRP and demand for the resource.
2.) Changes in Productivity
•
Technological Advances increase Marginal
Product and therefore MRP/Demand.
3.) Changes in Price of Other Resources
•
Substitute Resources
• Ex: What happens to the demand for assembly line workers if price of robots falls?
•
Complementary Resources
•
Ex: What happens to the demand nails if the price of lumber increases significantly?
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20

Use the following data:
Units of
Labor
Total
Product
(Output)
Marginal
Product
(MP)
Product
Price
Price = $10
Additional
Revenue per worker
Wage = $20
Additional
Cost per worker
0 0 0
0 0
1 7 7 10
70 20
2 17 10 10
100 20
3 24 7 10
70 20
4 27 3 10
30 20
29 2 10
20 20
6 for the good increased significantly?
27 -3 10
-30 20
2. Value of each worker would increase.
21

Use the following data:
Units of
Labor
Total
Product
(Output)
Marginal
Product
(MP)
Product
Price
Price = $100
Additional
Revenue per worker
Wage = $20
5
6
3
4
7
0
1
2
24
27
29
30
27
0
7
17
1
-3
3
2
10
7
7
0
100
100
100
100
100
100
100
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Use the following data:
Units of
Labor
Total
Product
(Output)
Marginal
Product
(MP)
Product
Price
Price = $100
Additional
Revenue per worker
Wage = $20
5
6
3
4
7
0
1
2
24
27
29
30
27
0
7
17
1
-3
3
2
10
7
7
0
100
100
100
100
100
100
100
0
700
1000
700
300
200
100
-300
Each worker is worth more!!
THIS IS
DERIVED
DEMAND.
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Use the following data:
Units of
Labor
Total
Product
(Output)
Marginal
Product
(MP)
Product
Price
Price = $10
Additional
Revenue per worker
Wage = $20
Additional
Cost per worker
0 0 0
0 0
1 7 7 10
70 20
2 17 10 10
100 20
3 24 7 10
70 20
4 27 3 10
30 20
5 2 10
20 20
30 1 10
10 20
27 -3 10
-30 20
2. Value of each worker would increase.
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Use the following data:
Units of
Labor
Total
Product
(Output)
Marginal
Product
(MP)
Product
Price
Price = $10
Additional
Revenue per worker
Wage = $20
5
6
3
4
7
0
1
2
0
70
170
240
270
290
300
270
70
-
100
70
30
20
10
-30
10
10
10
10
0
10
10
10
0
700
1000
700
300
200
100
-300
Each worker is worth more!
More demand for the resource.
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3 Shifters of Resource Demand
Identify the Resource and Shifter (ceteris paribus):
1. Increase in demand for microprocessors leads to a(n)
________ in the demand for processor assemblers.
2. Increase in the price for plastic piping causes the demand for copper piping to _________.
3. Increase in demand for small homes (compared to big homes) leads to a(n) _________ the demand for lumber.
4. For shipping companies, __________ in price of trains leads to decrease in demand for trucks.
5. Decrease in price of sugar leads to a(n) __________ in the demand for aluminum for soda producers.
6. Substantial increase in education and training leads to an ___________ in demand for skilled labor.
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3 Shifters of Resource Demand
Identify the Resource and Shifter (ceteris paribus):
1. Increase in demand for microprocessors leads to a(n)
________ in the demand for processor assemblers .
2. Increase in the price for plastic piping causes the demand for copper piping to _________.
3. Increase in demand for small homes (compared to big homes) leads to a(n) _________ the demand for lumber.
4. For shipping companies, __________ in price of trains leads to decrease in demand for trucks.
the demand for aluminum for soda producers.
6. Substantial increase in education and training leads to an ___________ in demand for skilled labor .
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Check In
What were some shifters of supply in the product market?
What do you think might cause supply for labor to shift in the resource market?
28

Supply Shifters for Labor
1. Number of qualified workers
•
Education, training, & abilities required
2. Government regulation/licensing
Ex: What if waiters had to obtain a license to serve food?
3. Personal values regarding leisure time and societal roles.
Ex: Why did the US Labor supply increase during
WWII?

With your partner...
Use supply and demand analysis to explain why surgeons earn an average salary of $137,050 and gardeners earn $13,560.
Supply and Demand For Surgeons
S
L
Supply and Demand For Gardeners
Quantity of Workers
D
L
S
L
D
L
Quantity of Workers

What are some reasons for differences in wage?
•
Investment in Human Capital
•
Becoming a surgeon requires a significant investment in human capital. Wages paid for surgeons must cover the investment in human capital required to become a surgeon.

What are other reasons for differences in wage?
Labor Market Imperfections-
•
Insufficient/misleading job information-
•
This prevents workers from seeking better employment .
•
Geographical Immobility-
•
Many people are reluctant or too poor to move so they accept a lower wage
•
Unions
•
Collective bargaining and threats to strike often lead to higher that equilibrium wages
•
Wage Discrimination-
•
Some people get paid differently for doing the same job based on race or gender (Very illegal!).

Check In
Go through PPT. List at least:
-2 things you feel like you know well
-2 things you need to review. How will you review?
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