English Subtitles for Micro Unit 5 Summary (Complete)- The Resource Market

Subtitles / Closed Captions - English

hey econ students<font color="#E5E5E5"> this</font><font color="#CCCCCC"> is Jacob Clifford</font>

welcome to microeconomics unit<font color="#E5E5E5"> 5 the</font> resource market if you've already watch this whole video<font color="#E5E5E5"> and you're just here to</font> review you click ahead by clicking on one of these we're<font color="#E5E5E5"> going to start off</font><font color="#CCCCCC"> by</font> <font color="#CCCCCC">talk</font><font color="#E5E5E5"> about the supply</font><font color="#CCCCCC"> and demand for</font>

<font color="#E5E5E5">resources or input then i'll talk about</font> minimum wage then i'll talk about perfectly competitive resource marketing firm left side by side graph it's kinda like the one you're<font color="#E5E5E5"> going</font><font color="#CCCCCC"> to</font><font color="#E5E5E5"> need at</font> three except<font color="#E5E5E5"> now it's</font><font color="#CCCCCC"> different then</font>

i'll talk about monopsony<font color="#E5E5E5"> is an</font> imperfect<font color="#E5E5E5"> competition and i'll finish</font> off talking<font color="#E5E5E5"> about combining resources</font> and the<font color="#E5E5E5"> least cost rule and as always</font> <font color="#E5E5E5">make sure you have the ultimate review</font> packet pause the video every once awhile

answer these questions draw the graph stone inside here this is gonna<font color="#E5E5E5"> help</font><font color="#CCCCCC"> you</font> learn economics and it supports<font color="#CCCCCC"> ACDC</font> econ at my youtube channel all right <font color="#CCCCCC">enough talk let's get into it</font><font color="#E5E5E5"> I were</font> talking about unified the resource

market or sometimes<font color="#CCCCCC"> called the factor</font> market and the good news<font color="#CCCCCC"> is</font><font color="#E5E5E5"> it's shorter</font> than previous units and it's<font color="#CCCCCC"> actually a</font> lot easier but it's<font color="#E5E5E5"> different in the</font> last units we talked about cost curves and identifying box the profit we're not

using those same grasses before we're learning a whole new set of graphs now your teacher might call this the factor market because resources factors inputs it's all the same<font color="#E5E5E5"> stuff it's to stop you</font> to produce<font color="#E5E5E5"> other stuff the factors</font><font color="#CCCCCC"> of</font>

production in the last<font color="#E5E5E5"> unit we had for</font> market structures perfect competition knobs competition oligopolies monopolies now we only have<font color="#E5E5E5"> two we're talking about</font> resources we have perfect competition and a monopsony and again this time

around we're not talking about producing products we're<font color="#E5E5E5"> talking about hiring</font> resources like land labor and capital now<font color="#E5E5E5"> I'm gonna focus mostly on labor</font> because that's one that's easiest to understand but everything I<font color="#CCCCCC"> talk</font><font color="#E5E5E5"> about</font>

also applies they like buying acres of land or buying machines and tools but let's just<font color="#E5E5E5"> focus on labor perfect</font> competition is the idea there's a lot of firms and they're all doing a lot of hiring and all of them are relatively

small so there's no one firm that's hiring all the workers also<font color="#E5E5E5"> there's many</font> workers and they have identical skills we're assuming these workers<font color="#E5E5E5"> are exact</font> substitutes for each other next<font color="#E5E5E5"> we're</font> gonna say the wage is constant these are

waged takers the reason why<font color="#E5E5E5"> is I can't</font> convince the company that<font color="#E5E5E5"> raise my wage</font> because I have<font color="#E5E5E5"> the same skills as</font> everybody else it's just like perma competition in the product market except again we're<font color="#CCCCCC"> talking about resources and</font>

like before we're going to see a <font color="#CCCCCC">side-by-side</font><font color="#E5E5E5"> graph showing a market</font><font color="#CCCCCC"> in</font> the firm so let's jump<font color="#E5E5E5"> into the market</font> first the demand for<font color="#E5E5E5"> labor is the</font> different quantities that firms are willing able to hire at different wages

it's just<font color="#E5E5E5"> like the demand of the product</font> market except now it's the<font color="#E5E5E5"> firm's who</font> are demanding and of<font color="#E5E5E5"> course there's a</font> lot of demand looks like this boot boot boot just like before when the wage goes up I'm gonna<font color="#E5E5E5"> hire less workers when the</font>

way it goes<font color="#CCCCCC"> down</font><font color="#E5E5E5"> I'm gonna hire more</font> workers the<font color="#E5E5E5"> supplied labor is the</font> different quantity of workers they're willing able to work at different wages and it's got the law<font color="#CCCCCC"> of supply when the</font> weeds goes up I'm<font color="#E5E5E5"> more</font>

to supply my labor<font color="#CCCCCC"> a wage goes down I'd</font> rather stay at home I'll decrease the quantity of my labor supply a lot of students get confused in this unit because they forget<font color="#E5E5E5"> who's demanding and</font> <font color="#E5E5E5">who's supplying so remember who is</font>

demanding labor well it's the firm's the firms are now demanders number before firms were supplying but now in the resource market they're the ones who are demanding workers and those firms create a market demand curve that is downward

sloping when wages hi very few workers gonna be hired when the wages low more workers be hired down sloping demand curve and who supplies labor well individual supply labor in<font color="#CCCCCC"> the product</font> market individuals demand<font color="#E5E5E5"> a but now</font>

again they're supplying their resources because they own the factors<font color="#CCCCCC"> of</font> production so the supplied labor is upward sloping when the wage goes up I'm more likely to increase my quantity supply of<font color="#E5E5E5"> labor upward sloping supply</font>

curve and we bring them<font color="#E5E5E5"> together it</font> looks like this demand supply let's just say for carpenters and you get a wage and a quantity<font color="#E5E5E5"> that is how wages</font> determined in a free market system this simple graph has a huge influence on

your life whether you're gonna be a <font color="#CCCCCC">carpenter or a</font><font color="#E5E5E5"> plumber or a lawyer the</font> supply and<font color="#CCCCCC"> demand for</font><font color="#E5E5E5"> labor tells you a</font> lot of information it's going to tell you<font color="#E5E5E5"> how much you can get</font><font color="#CCCCCC"> pay</font><font color="#E5E5E5"> and how</font> <font color="#CCCCCC">many workers are going to be out there</font>

doing that same job if you want a job <font color="#CCCCCC">that has a high income it's actually</font> pretty<font color="#E5E5E5"> simple find a job that has very</font> low supply or a job that has very<font color="#E5E5E5"> high</font> <font color="#E5E5E5">demand ideally have one that has high</font> demand and very low supply people can't

do it<font color="#E5E5E5"> because they don't have the skills</font> <font color="#E5E5E5">and the resources to pull it off but</font><font color="#CCCCCC"> you</font> <font color="#E5E5E5">can and</font><font color="#CCCCCC"> then demand is high people</font> really want to pay you<font color="#E5E5E5"> a lot for it the</font> result is a higher wage that's why athletes make so much money low supply

and high demand now the reverse stay away<font color="#E5E5E5"> from jobs like that low demand and</font> a very high supply you don't want those kind of jobs<font color="#E5E5E5"> you can have a low wage now</font> your<font color="#CCCCCC"> teachers not going</font><font color="#E5E5E5"> to test you on</font> this<font color="#CCCCCC"> information but I would be a</font>

horrible economist of I didn't bring it up there's a correlation between education and income the more education you get the higher income no less education you have the lower your income that's all<font color="#E5E5E5"> because of supply demand for</font>

labor and for your enjoyment here's a list of<font color="#E5E5E5"> the highest-paid undergraduate</font> degrees in the United<font color="#CCCCCC"> States we've got</font> petroleum engineering Chemical Engineering Electrical and rain north a lot of engineering jobs not bet you that

petroleum engineering<font color="#CCCCCC"> one's probably got</font> less demand as before so prices<font color="#E5E5E5"> of oil</font> has<font color="#E5E5E5"> fallen I bet you</font><font color="#CCCCCC"> that</font><font color="#E5E5E5"> majors not as</font> lucrative as<font color="#CCCCCC"> what's was that's the main</font> point here is that markets<font color="#E5E5E5"> can change</font> over time a great<font color="#E5E5E5"> job now has a high</font>

income but maybe a change<font color="#E5E5E5"> in demand</font> <font color="#E5E5E5">supply can change that big a VCR repair</font> man a great<font color="#E5E5E5"> job the 1980s probably not a</font> great job now<font color="#E5E5E5"> okay now here's the three</font> shifters of resource demand now<font color="#E5E5E5"> I'm</font> going to focus on labor but it also

applies<font color="#CCCCCC"> to any of the other factors</font> production<font color="#E5E5E5"> the first shifter of demand</font> <font color="#CCCCCC">for a resource is it changed the demand</font> for the product that<font color="#E5E5E5"> it produces this is</font> <font color="#E5E5E5">called derived demand so the demand for</font> a resource like a<font color="#E5E5E5"> commercial pizza oven</font>

depends on the products it produces<font color="#E5E5E5"> so</font> the<font color="#E5E5E5"> demand for pizza goes up the demand</font> for the ovens goes up ovens are the resource now keep<font color="#E5E5E5"> in mind</font><font color="#CCCCCC"> we're not</font> talking about complementary products we're talking about resources for

example<font color="#CCCCCC"> think of cereal cereal and milk</font> are complements to each other when people want more cereal that<font color="#E5E5E5"> will</font> increase the demand for the resources for cereal so we're<font color="#CCCCCC"> talking</font><font color="#E5E5E5"> about the</font> grain the rice<font color="#CCCCCC"> to produce a cereal the</font>

milk is a complementary product that's a different concept in the product market we're talk about resources here another shifter is the privity of those <font color="#E5E5E5">resources so a new resource has come out</font> and<font color="#CCCCCC"> they can</font><font color="#E5E5E5"> produce more stuff firms</font>

want to hire and get those resources because they're better than other resources are<font color="#E5E5E5"> not as productive the</font> third shifter is the price<font color="#CCCCCC"> of some</font> related resource either a substitute or a compliment for<font color="#E5E5E5"> example if you're</font>

building<font color="#CCCCCC"> a house and</font><font color="#E5E5E5"> the price of bricks</font> goes up you<font color="#E5E5E5"> might say I'm not gonna make</font> it out of bricks I'm gonna<font color="#E5E5E5"> go make out a</font> lumber instead so it's the<font color="#CCCCCC"> same</font><font color="#E5E5E5"> concept</font> you stop<font color="#E5E5E5"> backing unit</font><font color="#CCCCCC"> two if the price</font> <font color="#CCCCCC">of a substitute resource goes up and</font>

<font color="#CCCCCC">people can demand more of this resource</font> if the price<font color="#CCCCCC"> of a complementary resource</font> goes up<font color="#CCCCCC"> till the</font><font color="#E5E5E5"> demand less of this</font> resource for example if<font color="#CCCCCC"> the price of</font> nails goes up then these demand for lumber would go down like I'm not going

to get the lumber because I want them <font color="#E5E5E5">pay for</font><font color="#CCCCCC"> those extra nails they're more</font> expensive that's the<font color="#CCCCCC"> idea</font><font color="#E5E5E5"> and of course</font> <font color="#E5E5E5">there's also shifters a supply the first</font> one is<font color="#E5E5E5"> the number of qualified workers</font> so if there's more qualified dentist or

carpenters supply would<font color="#E5E5E5"> increase and</font> there's less or those than the<font color="#E5E5E5"> supply</font> <font color="#E5E5E5">would decrease again that explains the</font> high wages for professional athletes the next one<font color="#CCCCCC"> is a change in government</font> regulations so if the government says

<font color="#CCCCCC">alright</font><font color="#E5E5E5"> we're going</font><font color="#CCCCCC"> to you know force</font> cooks to go through a<font color="#CCCCCC"> ten year training</font> process to become a cook at a<font color="#CCCCCC"> fast-food</font> restaurant I would decrease supply of those workers if the government decreases regulation says anyone can

become a dentist you know you don't<font color="#E5E5E5"> need</font> <font color="#E5E5E5">to have any training whatsoever that</font> would increase the<font color="#E5E5E5"> supply of dentists</font> that's probably<font color="#CCCCCC"> not that good of an idea</font> another shifter is personal values towards leisure and societal roles so

after<font color="#CCCCCC"> World War</font><font color="#E5E5E5"> two more women decided</font> to go to<font color="#CCCCCC"> works that increase the supply</font> of all sorts of<font color="#E5E5E5"> labor the big takeaway</font> here is that wages can change<font color="#E5E5E5"> based on</font> changes of supply and demand right now take out<font color="#E5E5E5"> the ultimate review packet I</font>

gave you a bunch of practice questions talked<font color="#CCCCCC"> about</font><font color="#E5E5E5"> what happens if this market</font> changes this way makes you know what happens to wage and quantity make<font color="#CCCCCC"> sure</font> you practice now we're going<font color="#E5E5E5"> to jump in</font> the idea of minimum wage

now obviously<font color="#CCCCCC"> this is a super</font> controversial topic a lot<font color="#CCCCCC"> of</font><font color="#E5E5E5"> people have</font> a lot<font color="#CCCCCC"> of different attitudes I'm just</font> <font color="#E5E5E5">going</font><font color="#CCCCCC"> to</font><font color="#E5E5E5"> show you the traditional view</font> towards the minimum<font color="#CCCCCC"> wage I made another</font> video explaining you know some pros and

cons and common misconceptions minimum wage I try to keep it is nonpartisan as possible take a loo this video talks more about the concept but I'm a focus more on the graph and what traditional economist think happens when<font color="#E5E5E5"> there's a</font>

minimum<font color="#CCCCCC"> wage you actually learned all</font> this<font color="#CCCCCC"> before we talk</font><font color="#E5E5E5"> about price controls</font> back in unit to a minimum<font color="#CCCCCC"> wage is a wage</font> floor right Sam<font color="#CCCCCC"> em amount that employers</font> are allowed<font color="#CCCCCC"> to pay their workers set by</font> the government says listen you can't pay

workers less than a certain amount so let's<font color="#E5E5E5"> jump in the graph we've got wage</font> and quantity supply demand of<font color="#E5E5E5"> labor</font> remember the firms are demanding<font color="#E5E5E5"> the</font> individuals are supplying we have an equilibrium wage at eight dollars an

hour now your teacher professor<font color="#E5E5E5"> a</font> <font color="#E5E5E5">textbook might be saying that the</font> <font color="#CCCCCC">quantity of Labor is actually quantity</font> of hours same concept here it doesn't really matter in this<font color="#CCCCCC"> case it's ten</font> let's just say<font color="#E5E5E5"> ten workers or 10,000</font>

workers are working<font color="#E5E5E5"> as fast food cooks</font> in this market now let's say the government<font color="#E5E5E5"> thinks that this wage is too</font> low<font color="#E5E5E5"> to live on it so well eight dollars</font> <font color="#CCCCCC">an hour is</font><font color="#E5E5E5"> not enough we</font><font color="#CCCCCC"> got to raise</font> that<font color="#E5E5E5"> wage we got to set a wage for it's</font>

<font color="#CCCCCC">gonna be up here at fifteen dollars an</font> hour the result is going to be disequilibrium so what's going to happen the quiet Amanda and<font color="#CCCCCC"> client supply well</font> when the wage goes up to 15 the firm's react listen I can't hire as many

workers<font color="#E5E5E5"> before so the coin demand will</font> decrease down to seven now at the same time workers are gonna see<font color="#E5E5E5"> that higher</font> wage could<font color="#E5E5E5"> be</font><font color="#CCCCCC"> out</font><font color="#E5E5E5"> there couch maquette a</font> job before I wouldn't get<font color="#E5E5E5"> a job at eight</font> dollars an hour I would at<font color="#E5E5E5"> 15 so they're</font>

gonna go jump in the labor force and they're going<font color="#E5E5E5"> to have a 12 B the</font> quantity supplied<font color="#E5E5E5"> the client supply is</font> <font color="#E5E5E5">gray in the coin manner that's a surplus</font> of Labor that's unemployment so before <font color="#CCCCCC">this policy there were ten jobs let's</font>

<font color="#E5E5E5">say 10,000 jobs where people were</font> working after theres only 7000 jobs<font color="#E5E5E5"> even</font> though twelve thousand workers actually want a job in that case there's 5,000 workers who do not<font color="#CCCCCC"> have a job</font><font color="#E5E5E5"> and</font> they're unemployed now of course<font color="#E5E5E5"> i have</font>

<font color="#E5E5E5">to stress it's not this simple in real</font> life myth was that simple we wouldn't <font color="#E5E5E5">have a minimum wage and we obviously do</font> have a minimum wage<font color="#E5E5E5"> there's kept me just</font> all bad there's got to be a reason we had the point is economist disagree a

lot on this graph in this idea<font color="#E5E5E5"> a lot say</font> well the demand might be really steep for it might be inelastic or they might <font color="#E5E5E5">say that</font><font color="#CCCCCC"> the wage set by the market was</font> actually the wrong way to start off with because workers don't<font color="#E5E5E5"> have very much</font>

power because there's less unions it doesn't really matter we're still<font color="#E5E5E5"> trying</font> <font color="#CCCCCC">to</font><font color="#E5E5E5"> figure</font><font color="#CCCCCC"> that stuff out</font><font color="#E5E5E5"> okay let's move</font> on and talk about<font color="#E5E5E5"> the</font><font color="#CCCCCC"> side-by-side graph</font> showing perfect competitive market and firm the<font color="#CCCCCC"> market graph you are</font>

no supply and demand we drew it earlier that's it the question now<font color="#CCCCCC"> is what does</font> <font color="#CCCCCC">the firm graph look like now if you're</font> thinking<font color="#CCCCCC"> oh demand equals marginal</font> revenue marginal cost ATC nope that's unit<font color="#CCCCCC"> three</font><font color="#E5E5E5"> that's the product market</font>

we're<font color="#E5E5E5"> talking about hiring workers we're</font> talking<font color="#CCCCCC"> about the resource market here</font> so before<font color="#CCCCCC"> I show you what the firm graph</font> looks like let's give you some concepts and help you build that<font color="#E5E5E5"> graph with your</font> knowledge<font color="#E5E5E5"> the first concept is here what</font>

is the marginal resource cost well it's the additional cost of hiring one more worker it's not the same as the marginal cost remember the marginal<font color="#CCCCCC"> cost is the</font> additional costs producing one more output this<font color="#E5E5E5"> is the cost of hiring one</font>

more worker now in a pervy competitive resource market this<font color="#E5E5E5"> is the same as</font><font color="#CCCCCC"> the</font> wage it's exactly the same<font color="#E5E5E5"> the</font><font color="#CCCCCC"> wage is</font> the MRC remember these workers are wage takers so if the wage step<font color="#E5E5E5"> of the market</font> is eight dollars per hour everyone's

<font color="#E5E5E5">getting paid eight dollars an hour every</font> firm can hire each worker at eight dollars an hour the additional cost of another worker eight dollars<font color="#E5E5E5"> another</font> worker eight<font color="#E5E5E5"> dollars another worker</font> eight<font color="#E5E5E5"> dollars the MRC equals the supply</font>

<font color="#E5E5E5">of labor and it's horizontal there's an</font> equation here I need later<font color="#CCCCCC"> on for</font> actually calculating it if the change in total cost divided by the change in workers the change in inputs the next concept is the marginal revenue product

or the MRP this is the additional revenue generated from another worker in the product market we had the marginal revenue the additional revenue you get from selling their output again<font color="#E5E5E5"> this</font><font color="#CCCCCC"> is</font> different<font color="#E5E5E5"> this is the additional revenue</font>

when you<font color="#E5E5E5"> hire another worker getting</font> another input now in a perfect competitive resource market<font color="#E5E5E5"> it's equal</font> to the price times the marginal product to the worker in other words if I hire another worker he adds another two

<font color="#E5E5E5">pizzas like I hire him you can produce</font> two more pizzas and I can sell a pizzas for ten dollars each the networker brought in twenty dollars into my company the MRP don't worry you'll get a chance to practice all this stuff the

point is there's<font color="#E5E5E5"> also an equation it's</font> right here the MRP is the change in total revenue divided by the change in inputs now how<font color="#CCCCCC"> many workers should</font> affirm hire well you already know the answer to that question if<font color="#E5E5E5"> the prof</font>

maximizing looks at this time you hire the MRP equals the MRC<font color="#E5E5E5"> oh so keep hiring</font> workers as long as the additional revenue they generate is great on the additional cost of hiring so if I hire one worker and he<font color="#E5E5E5"> brings in you know a</font>

hundred dollars but it cost me ten dollars to hire<font color="#CCCCCC"> him I'm at a higher that</font> worker another worker brings in like fifty dollars I'm gonna hire another worker brings in twelve dollars I'm gonna hire if one worker brings in like

eight dollars additional eight dollars then I'm not going<font color="#E5E5E5"> to hire that worker</font> because it cost me ten dollars to hire they'll bring in less prop to my company that's bad you always hire or Mr P equals of our seat so if you take<font color="#E5E5E5"> these</font>

two cons so you put<font color="#CCCCCC"> them on the graph you get</font> this<font color="#E5E5E5"> right here we've got</font><font color="#CCCCCC"> a horizontal</font> supply curve which is<font color="#E5E5E5"> equal</font><font color="#CCCCCC"> to the</font> marginal resource cost because these workers or wage takers remember the

market sets the wage in this case<font color="#CCCCCC"> w/e</font> and every<font color="#E5E5E5"> single worker has to work for</font> <font color="#E5E5E5">that wage now you can't convince the</font> company to pay<font color="#E5E5E5"> any more I have identical</font> skills everybody else so the wages set the wages set and the cost for each firm

is the<font color="#E5E5E5"> same margin research</font><font color="#CCCCCC"> cost is</font> horizontal right there and the demand for labor is downward sloping and equal to the marginal revenue product now the reason is downward sloping is because the law<font color="#CCCCCC"> of diminishing marginal returns</font>

each workers can produce less additional output so they're each going to<font color="#E5E5E5"> add less</font> additional revenue and of course you hire where Mr P equals MRC which is right there now to<font color="#E5E5E5"> help understand this</font> concept better let's go back<font color="#E5E5E5"> and look at</font>

we learn in unit<font color="#E5E5E5"> 3 we talked about the</font> product market and we're learning now in unit 5 in the resource market both<font color="#E5E5E5"> of</font> these<font color="#E5E5E5"> are perfect competition right</font> they're both proving Pettitte of firms one selling output right horizontal

demand curve equals marginal revenue we have marginal cost that goes down and up down here we're hiring workers in a perfectly competitive firm and we've got a horizontal supply curve does not demand its supply so if you see a test

question about perfect<font color="#E5E5E5"> competition make</font> sure you<font color="#E5E5E5"> read carefully to find out</font><font color="#CCCCCC"> if</font> <font color="#CCCCCC">we're talking</font><font color="#E5E5E5"> about</font><font color="#CCCCCC"> the product market</font> like producing oranges or for down<font color="#CCCCCC"> here</font> in the resource market hiring workers to pick those oranges all right now is the

time to<font color="#E5E5E5"> practice take out the ultimate</font> review packet try the questions I gave you and try to make sure you can draw the side-by-side graph for purple competition in the resource market so the<font color="#CCCCCC"> side-by-side grass we're learning</font>

here similar but not the same as<font color="#E5E5E5"> what we</font> did before one key difference is there's no short<font color="#E5E5E5"> run no long remember when</font> there's profit being made firms enter that whole thing happening that's not what's really going on here<font color="#E5E5E5"> there's no</font>

profit box you don't draw a loss or anything like that but the curved can shift so here's a practice question for you what will happen<font color="#CCCCCC"> to the wage and</font> quantity for the market and for the firm if new workers enter this industry so is

this going to affect demand or supply well supply right these are<font color="#E5E5E5"> individuals</font> when to supply the labor it has no <font color="#CCCCCC">effect on</font><font color="#E5E5E5"> adam and so supply is going to</font> increase that's going to cause supply curve to shift to the right way to go

down quantity goes up which makes<font color="#E5E5E5"> sense</font> if there's more workers jumping in than wages will fall there's more of those workers quantity goes up and for the firm the wage will fall and now the firm is going to hire more workers as well

that's what<font color="#E5E5E5"> happens on both graphs now</font> <font color="#E5E5E5">hopefully understand</font><font color="#CCCCCC"> the</font><font color="#E5E5E5"> side-by-side</font> graph stuff now we'll<font color="#E5E5E5"> go to the same</font> <font color="#CCCCCC">thing</font><font color="#E5E5E5"> over again except now in chart</font> form so right here<font color="#CCCCCC"> I have the number of</font> <font color="#E5E5E5">workers</font>

and I have their total product the output they can<font color="#E5E5E5"> produce the same thing</font> we<font color="#CCCCCC"> learn</font><font color="#E5E5E5"> all the way back in unit 3 i'm</font> also given the price of the product is 10 so they can sell every<font color="#CCCCCC"> single one of</font> these<font color="#E5E5E5"> units for ten dollars so it's a</font>

proven<font color="#CCCCCC"> petted product market in a</font> primitive resource market because the wage is 15 so<font color="#E5E5E5"> i can</font><font color="#CCCCCC"> i'll say it again</font> <font color="#E5E5E5">the price is 10 they can sell each</font> output for ten dollars and they can hire each worker for fifteen dollars which<font color="#CCCCCC"> is</font>

the wage your job is to figure<font color="#E5E5E5"> out how</font> many<font color="#E5E5E5"> workers they should hire to</font> maximize profit if<font color="#E5E5E5"> you have to calculate</font> MRP and MRC so pause the video then<font color="#CCCCCC"> I'll</font> <font color="#E5E5E5">go over the answers good luck seriously</font> you should pause it to answer<font color="#CCCCCC"> this</font>

question the first<font color="#E5E5E5"> thing to do is</font> calculate the marginal product or the additional output each worker produces so the<font color="#E5E5E5"> first worker adds additional</font> seven next<font color="#E5E5E5"> worker adds an additional ten</font> next worker adds an additional seven

this gives you the marginal product the same thing you calculated all<font color="#CCCCCC"> the way</font> back in unit<font color="#E5E5E5"> three and you should be</font> <font color="#E5E5E5">able to spot the three stages of returns</font> <font color="#E5E5E5">like marginal price is going up then</font> marginal products going down the

marginal product goes negative three stages of returns why well because the law of<font color="#E5E5E5"> diminishing marginal returns each</font> <font color="#CCCCCC">worker will eventually produce less</font> additional output because of fixed resources now add another column here

that you probably didn't this<font color="#CCCCCC"> is the</font> price the price member every single <font color="#CCCCCC">product can be sold for ten dollars</font> another unit they're gonna sell ten dollars now the<font color="#E5E5E5"> next question is what's</font> the marginal revenue product what is the

additional revenue generated from each one<font color="#CCCCCC"> of these workers well if the first</font> worker adds additional seven output then the additional revenue they generated must be<font color="#CCCCCC"> 70 next worker second worker</font> adds additional<font color="#E5E5E5"> 100 and that's worker 70</font>

than 30 than 20 again the marginal revenue product is the price time the marginal product<font color="#CCCCCC"> in</font><font color="#E5E5E5"> this cone right he</font> represents the demand or what firms are willing<font color="#CCCCCC"> to</font><font color="#E5E5E5"> pay for</font><font color="#CCCCCC"> these workers right</font> <font color="#E5E5E5">I'm willing</font><font color="#CCCCCC"> to pay the</font><font color="#E5E5E5"> second worker up</font>

to one hundred dollars I'd never pay him 101 he doesn't bring in more money than that but up to ninety nine dollars 99 cents I would pay him that amount to work for me<font color="#CCCCCC"> because he brings</font><font color="#E5E5E5"> in profit</font> so this<font color="#CCCCCC"> is</font><font color="#E5E5E5"> the demand for those workers</font>

next up what's the marginal resource <font color="#E5E5E5">cost remember this is perving</font><font color="#CCCCCC"> Pettit of</font> resource market so the resource cost is the same<font color="#E5E5E5"> for everybody it's</font><font color="#CCCCCC"> $15</font><font color="#E5E5E5"> every</font> single<font color="#E5E5E5"> italy's workers</font><font color="#CCCCCC"> be hide from</font> another fifteen dollars so the MRC 15 15

15 all the way down there it is so to figure<font color="#E5E5E5"> out how many</font><font color="#CCCCCC"> workers you hire you</font> just<font color="#E5E5E5"> ask yourself should</font><font color="#CCCCCC"> i hire that</font> worker for<font color="#E5E5E5"> the first worker they bring</font> in seventy dollars my company cost me fifteen dollars to<font color="#E5E5E5"> hire our Michelle</font>

Hiram yes second worker yes they're working yes 40s 50s<font color="#E5E5E5"> six nope the right</font> <font color="#CCCCCC">answer here is five you would definitely</font> <font color="#CCCCCC">hire five workers because they maximize</font> profit now did you<font color="#E5E5E5"> get that one right</font> number

higher where Mr P equals MRC chief through the calculations<font color="#E5E5E5"> Mr P MRC make</font> sure keep hiring workers and long as the MRP is grand the MRC now if the mr p equals MRC still<font color="#E5E5E5"> hire that worker as</font> well next question for you what<font color="#E5E5E5"> is the</font>

total revenue what is the total cost and what is the profit<font color="#E5E5E5"> when we hire those</font> five workers let's assume<font color="#CCCCCC"> there's no</font> fixed<font color="#CCCCCC"> cost right there's no fixed</font><font color="#E5E5E5"> cost</font> <font color="#CCCCCC">it's all variable costs so calculate</font> those now lass<font color="#CCCCCC"> didn't get confused here</font>

like okay well how do I find a total revenue is<font color="#E5E5E5"> the wage is the price it's</font> all logical to think clearly it's the <font color="#E5E5E5">price times the quantity what's the</font> quantity you're going to produce me hire five workers well 29 so I hire five

workers produce 29 units of output times ten dollar price that's two<font color="#CCCCCC"> hundred</font> ninety<font color="#E5E5E5"> dollars total revenue to figure</font> out the cost I to figure out what's the total cost of hiring these workers well there's five workers I pay them fifteen

dollars each which is their wage 15 times 5 is $75 total cost remember I told you there's no fixed costs<font color="#E5E5E5"> here if</font> I gave you fixed costs<font color="#E5E5E5"> just to add</font><font color="#CCCCCC"> that</font> in as well to get the profit<font color="#E5E5E5"> it's just</font> the total revenue<font color="#CCCCCC"> minus total cost so</font>

it's<font color="#CCCCCC"> two 50-75 so $215 profit there's</font> your answer so you want a little secret and all these videos<font color="#CCCCCC"> I'm actually</font><font color="#E5E5E5"> not</font> really wearing regular pants I'm just wearing<font color="#E5E5E5"> my pajamas boo star wars the</font> back up to this point I've been talking

<font color="#E5E5E5">about perfectly in Pettitte of labor</font> markets but sometimes there's imperfections in<font color="#E5E5E5"> the market we have a</font> list right here for<font color="#CCCCCC"> different things</font><font color="#E5E5E5"> the</font> first one is insufficient or misleading job information this<font color="#E5E5E5"> is the idea that</font>

workers don't know what they should<font color="#E5E5E5"> be</font> paid so if I really don't know<font color="#E5E5E5"> what the</font> equilibrium wages for<font color="#E5E5E5"> a market I might</font> be willing<font color="#CCCCCC"> to accept something lower</font> even<font color="#E5E5E5"> though I should actually be paying</font> be paid more so that<font color="#CCCCCC"> might cause a</font>

market to have imperfections also <font color="#CCCCCC">geographic immobility some people just</font> can't move and<font color="#E5E5E5"> if they can't move it a</font> two-point move they'll have to accept the lower waves and what normally would happen in<font color="#E5E5E5"> that market in both of those</font>

cases<font color="#E5E5E5"> wages to be lower but in this case</font> of unions wages might be actually higher than equilibrium if workers get together and they basically collude it's okay you got to raise his higher wages so we're going to strike then that<font color="#CCCCCC"> would lead to</font>

higher wages and that's the idea of collective<font color="#CCCCCC"> bargaining and last one is</font> wage discrimination which is the<font color="#CCCCCC"> idea of</font> paying some workers<font color="#E5E5E5"> more based on</font> <font color="#E5E5E5">something else other than their actual</font> performance or acute abilities so if you

pay some workers less based on their gender or race then that would lead to some wage discrimination and some imperfections in the market let's talk <font color="#E5E5E5">about this</font><font color="#CCCCCC"> idea of a monopsony that's a</font> monopoly for later<font color="#E5E5E5"> a monopsony is when</font>

there's only one hiring and workers are relatively immobile so there's only one firm they have complete control the market<font color="#CCCCCC"> and</font> these workers can't just leave it<font color="#E5E5E5"> to</font><font color="#CCCCCC"> a</font> forget you<font color="#E5E5E5"> will go find a job somewhere</font>

else also this makes them wage makers all right now let's<font color="#E5E5E5"> build the graph for</font> a monopsony right here i have the<font color="#E5E5E5"> wage</font> per hour and<font color="#E5E5E5"> the number of workers who</font> are willing<font color="#E5E5E5"> and able to work for those</font> different wages and let's assume<font color="#E5E5E5"> this</font>

company can't wage discriminating there was that can't hire one person four dollars and somebody else<font color="#E5E5E5"> for five</font> dollars somebody else for six dollars and all<font color="#E5E5E5"> pam different wages if they're</font> <font color="#E5E5E5">going to pay people they got all pay em</font>

the same exact wage so let's calculate the marginal resource cost well the very first workers want to work for four dollars and fifty cents so the additional resource cost of hiring is four dollars fifty cents now if<font color="#CCCCCC"> I</font><font color="#E5E5E5"> want</font>

to<font color="#CCCCCC"> get another worker to work for my</font> company well I got to increase the weight but I increase the wage for everybody not just the new worker but the worker those willing to work for less so<font color="#CCCCCC"> now I pay everybody five dollar</font>

so when<font color="#E5E5E5"> I do that the marginal resource</font> <font color="#E5E5E5">cost now is 550 remember it's the five</font> dollars i can put a new worker plus the 50 cents i got to play the other worker who's 12 only<font color="#E5E5E5"> work for 450 so now the</font> marginal resource cost is higher now

it's time to hire<font color="#CCCCCC"> another worker when i</font> do that that workers want to work for five<font color="#E5E5E5"> dollars and fifty cents now I hired</font> <font color="#E5E5E5">33 workers for five dollars and fifty</font> cents to my marginal resource cost is six dollars and fifty cents now you

should<font color="#E5E5E5"> recognize this is the same</font> concept we learned we learned about monopolies for a monopoly to sell another unit they got to lower the price of all units including the ones that people want to pay a higher price same

concept here except now reverse for a monopsony to get another worker to work for your company you have<font color="#E5E5E5"> to raise the</font> wage for that worker and the<font color="#CCCCCC"> previous</font> worker or all other workers who are willing to<font color="#CCCCCC"> work for less so if you're to</font>

take these<font color="#E5E5E5"> numbers and put them</font><font color="#CCCCCC"> on a</font> graph you'd find<font color="#CCCCCC"> out looks like this we</font> have an upward sloping supply for labor and now we<font color="#E5E5E5"> have a marginal resource cost</font> that's higher right it's<font color="#E5E5E5"> like the</font> monopoly graph<font color="#E5E5E5"> whew but it looks like</font>

this<font color="#CCCCCC"> when you add a demand curve which</font> <font color="#CCCCCC">is the MRP downward sloping curve looks</font> like this you can figure<font color="#E5E5E5"> out how</font><font color="#CCCCCC"> many</font> workers<font color="#E5E5E5"> are going to hire and what ways</font> are going to give those workers well<font color="#E5E5E5"> you</font> <font color="#E5E5E5">are another rule you high or mr p equals</font>

MRC which<font color="#E5E5E5"> is right here at quantity</font><font color="#CCCCCC"> q e</font> now what wages are going<font color="#E5E5E5"> to pay them</font> <font color="#E5E5E5">well not up there they can pay them</font> right here<font color="#CCCCCC"> w/e this is the weight notice</font> it is lower than the wage would exist if we were hiring workers where supply

equals demand which totally makes sense a monopsony would hire fewer workers and pay them less then would happen in perfect competitive resource markets now just like I showed you with perfect competition let me show

<font color="#CCCCCC">you what these two graphs looked like on</font> top of each<font color="#E5E5E5"> other looks</font><font color="#CCCCCC"> like this we've</font> got<font color="#CCCCCC"> a monopsony on the top got a</font> monopoly<font color="#CCCCCC"> on</font><font color="#E5E5E5"> the bottom same general idea</font> that shows you these markets are inefficient they're not producing what

<font color="#E5E5E5">perfect competition would be producing</font> or not hiring or<font color="#E5E5E5"> perfect competition be</font> hiring and in this case the monopsony has a lower wage than what<font color="#E5E5E5"> would happen</font> in perfect competition and monopoly has a higher price what happened in perfect

competition<font color="#E5E5E5"> all right so if you can draw</font> one of these graphs you can try the other one<font color="#E5E5E5"> they're just a flip version of</font> each other now let's<font color="#CCCCCC"> do a quick practice</font> question makes you actually have it it's <font color="#CCCCCC">actually the same</font><font color="#E5E5E5"> as the one that's in</font>

your ultimate review packet identify the wage quantity of Labor that would be hired in this monopsony good they would hire Mr P equals mr c which is q2 and <font color="#CCCCCC">then pay them nine dollars so Q to nine</font> dollars the right answer also notice

there's no box of profit here we're gonna draw there's no<font color="#CCCCCC"> ATC there's no</font> longer there's no short run this graph for most teachers they<font color="#CCCCCC"> explain this way</font> he's going<font color="#CCCCCC"> to understand where is the</font> wage and<font color="#E5E5E5"> what is the quantity of workers</font>

will be hired so let's switch gears and <font color="#E5E5E5">talk about combining resources up to</font> this point<font color="#CCCCCC"> only</font><font color="#E5E5E5"> be talked about which</font> hiring workers but companies hire workers and machines capital and lay in and stuff like that so<font color="#E5E5E5"> what's the rule</font>

for combining resources they've already learned the general idea back in unit<font color="#CCCCCC"> 2</font> we talked about consumer choice now we're talk about hiring workers and hiring resources so this<font color="#E5E5E5"> is called the</font> <font color="#E5E5E5">least cost rule we've got robots and</font>

we've got workers<font color="#E5E5E5"> the robots cost ten</font> dollars and the workers<font color="#E5E5E5"> cost five and</font> I've given<font color="#CCCCCC"> you the marginal product for</font> the robots and the workers so the first robot adds additional 30 units and the second robot adds additional twenty

<font color="#CCCCCC">eight and ten</font><font color="#E5E5E5"> and five again it's</font> <font color="#CCCCCC">falling because</font><font color="#E5E5E5"> a lot of diminishing</font> returns but remember<font color="#E5E5E5"> you might be all I</font> want to hire as many robots as possible keep in mind<font color="#CCCCCC"> it all depends</font><font color="#E5E5E5"> on the price</font> from<font color="#E5E5E5"> the price is ten dollars and the</font>

workers<font color="#E5E5E5"> are five dollars with do some</font> calculations here we have to calculate the marginal product / the price this will put them in like terms and help us figure out which one<font color="#E5E5E5"> we should hire</font> based on how<font color="#E5E5E5"> much output we're getting</font>

per dollar spent so let's<font color="#CCCCCC"> assume you</font> have<font color="#E5E5E5"> thirty-five dollars what's the best</font> combination of robots and workers would use<font color="#CCCCCC"> that money to its</font><font color="#E5E5E5"> most effective use</font> North what's the least cost we can get and get<font color="#E5E5E5"> the most output possible the</font>

very first robot adds 30 additional output but it<font color="#CCCCCC"> costs is ten dollars to</font> get<font color="#E5E5E5"> it so we get three output per dollar</font> spent so next one gives us two<font color="#E5E5E5"> and then</font> one<font color="#E5E5E5"> on the other side we've got these</font> numbers now we just<font color="#CCCCCC"> pick off the one</font>

that gives us the most<font color="#E5E5E5"> output per dollar</font> spent until we run out of money so<font color="#CCCCCC"> we</font> definitely hide the very first worker and the way i er the first robot the second worker then finally this<font color="#CCCCCC"> is the right answer to</font>

robots three workers is the best way to use that<font color="#CCCCCC"> thirty-five dollars and that's</font> <font color="#E5E5E5">the application of the least cost rule</font> the least class rule is that equation up here on the top the marginal<font color="#E5E5E5"> product of</font> resource x divided by<font color="#E5E5E5"> the price of that</font>

resource<font color="#CCCCCC"> X until it equal is a marginal</font> product of resource y divided by<font color="#E5E5E5"> the</font> price of why that's<font color="#E5E5E5"> exactly we did we</font> calculated those things and keep buying the<font color="#CCCCCC"> 12 tire so if one's</font><font color="#E5E5E5"> high another one</font> to keep buying that one and it's going

<font color="#E5E5E5">to fall because a lot of mission</font><font color="#CCCCCC"> runs</font> returns as it falls of it those loans I don't want you start buying the other one instead there's no better combination to use that $35 then right there two robots three workers now

that's the least cost rule but there's another rule for maximizing profit when combining resources it looks like this marginal revenue product of resource x divided by<font color="#E5E5E5"> the marginal resource cost of</font> resource<font color="#CCCCCC"> X till it equals the marginal</font>

revenue product of resource wide<font color="#E5E5E5"> x by</font> the marginal resource<font color="#E5E5E5"> cost of resource y</font> equals<font color="#CCCCCC"> one it's really</font><font color="#E5E5E5"> easy concept you</font> already know it you always hire workers as long as the mr p equals MRC so if that<font color="#E5E5E5"> is</font><font color="#CCCCCC"> happening then</font><font color="#E5E5E5"> for</font><font color="#CCCCCC"> x and those</font>

two things equal that<font color="#E5E5E5"> would be one and</font> you want it to equal one for y until everything that just<font color="#E5E5E5"> equals one let's</font> try practice questions see if they actually get it assume the MRP of the last worker hired is fifty dollars and

the MRP of the last unit<font color="#E5E5E5"> of capital</font> hired is three hundred dollars if the MRC of worker one is one hundred dollars and<font color="#E5E5E5"> mr cm capital is one hundred dollars</font> what should this firm do<font color="#E5E5E5"> they you have</font> to<font color="#E5E5E5"> throw it in the equation just</font>

understand the<font color="#E5E5E5"> general concept notice</font> the MRP of this worker is fifty dollars but<font color="#E5E5E5"> it</font><font color="#CCCCCC"> cost me a hundred dollars to give</font> <font color="#E5E5E5">them the MRC is 100 I should not hire</font> those work in fact I should fire workers if the MRC is greater the MRP fire those

workers now for the machines of the capital the MRP is 300 but it<font color="#E5E5E5"> cost me a</font> hundred dollars to get<font color="#E5E5E5"> the capital I</font> should hire more of the capital so the answer the question is they should fire workers and they should hire more

capital again this is<font color="#CCCCCC"> just expanding on</font> the idea<font color="#E5E5E5"> of hiring where Mr P equals</font><font color="#CCCCCC"> mrf</font> see if you do that for all of your resources your land labor and capital then you're maximizing profit now that was it for the resource market but keep

in mind even<font color="#CCCCCC"> though</font><font color="#E5E5E5"> this unit is kind of</font> short it's still pretty tricky you have to practice make sure you try<font color="#E5E5E5"> the</font> ultimate review packet go through their answer these questions make sure<font color="#E5E5E5"> you can</font> draw those key graphs because they're

different<font color="#CCCCCC"> than the ones that you learn</font> back in units three and four as always please subscribe thank you so much for watching<font color="#E5E5E5"> also try these</font> multiple choice questions<font color="#E5E5E5"> I gave you for</font> microeconomics unit<font color="#CCCCCC"> 5 bunch of</font>

<font color="#E5E5E5">multiple-choice questions I'll go give</font> you the question then you<font color="#E5E5E5"> go ahead</font><font color="#CCCCCC"> and</font> write down the answer then I go<font color="#E5E5E5"> over</font> those answers all right thank you so much<font color="#CCCCCC"> for watching until next time</font>

Video Description

Thank you for supporting ACDC Econ and for getting the Ultimate Review Packet. You rock! In this video I explain micro Unit 5- The Resource Market (aks. The Factor Market). I cover concepts like the demand and supply for resources (1:05), minimum wage (6:38), perfectly competitive firms, MRP and MRC (8:46), how to maximizing profit when hiring workers (13:10), monopsonies (16:29), and the least cost rule (20:51). Thank you for wiatching. Please subscribe!

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