Determinants of Resource DemandThis is a featured page

Changes in product demand:
[Remember: resource demand is a 'derived demand' from its product]

  • Condition: other things equal
  • Product demand ↑, D for resource involved ↑ (direct relationship)
  • higher product price increase MRP of resources.
  • E.g. The demand for new houses drive up house prices, causing more demand for construction workers and an increase in their wages.

Changes in productivity
  • Condition: other things equal
  • Resource productivity ↑, demand ↑ (direct relationship)
  • 3 ways of altering resource productivity:
    • Quantities of other resources
      • Q of capital + land used w/ labor ↑, MP ↑, productivity of labor ↑
    • Technological advances
      • Quality of capital + land used w/ labor ↑, MP ↑, productivity of labor ↑
    • Quality of variable resource
      • e.g. training, education
      • Quality of labor ↑, MP ↑, productivity of labor ↑
Changes in the prices of other resources
[Depends on whether labor and capital are substitutes/complements in production]

  • Substitute Resources
    • E.g. a receptionist (labor) is substitutable for an answering machine (capital)
    • Substitute Effect
      • Firm buy more of input whose P relatively low + buy less of input whose P has relatively high
    • Output Effect
      • The output effect means that the firm will purchase more of one particular input when the price of the other input falls and less of that particular input whent he price of the other inut rises.
      • – PCAPITAL ↓ → costs ↓ → output ↑ → DALL RESOURCES ↑ → DLABOR ↑
    • Net Effect:
      • If substitute effect>output effect, decrease in price for capital decreases demand for laborI
      • If output effect>substitute effect, decrease in price for capital increases demand for labor
  • Complementary Resources
    • Labor and capital must be used in fixed proportions e.g. one man operates one machine
    • Output effect

In general, the demand for labor will increase when:
  • The demand for the product produced by that labor increases
  • The productivity of labor increases
  • The price of a substitute input decreases, provided the output effect exceeds the substitution effect
  • The price of a substitute input increases, provided the substitution effect exceeds the output effect
  • The price of a complementary input decreases

Occupational Employment Trends
Changes in labor demand affect wage rates and employment rates

  • The fastest-growing occupations include home health aids, software engineers; whereas the fastest-declining occupations include textile machine operators and mailing clerks
    • The increases can be attributed to improved quality and productivity of workers
    • The decreases can be attributed to "labor-saving" technologies replacing these labor forces, and also imports into the United States

Latest page update: made by JessicaNg , Dec 3 2007, 4:32 AM EST (about this update About This Update JessicaNg Edited by JessicaNg

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