Assignment:
Apply Concepts of Factor Demand Page 1 of 2 1. Resource prices affect an economic system in multiple ways. List and explain three of these effects.
1. Derived demand
A. Economists call the demand for a resource a derived factor demand. Explain what the term derived means in derived factor demand.
B. How is the marginal-revenue-product curve related to the derived-factordemand curve? Why is the derived-factor-demand curve downward sloping with respect to price?
C. Why is the resource demand curve for a firm operating in an imperfectly competitive industry steeper than the resource demand curve of a firm operating in a perfectly competitive industry?
D. Is the resource demand curve of a firm operating in an imperfectly competitive industry more or less elastic than the resource demand curve of a firm operating in a perfectly competitive industry? Is a firm operating in an imperfectly competitive industry more or less responsive to resource price changes than a firm operating in a perfectly competitive industry?
2. At what point will a profit-maximizing firm stop hiring new employees?
3. The three determinants of resource demand: 1) demand for the final good or service, 2) technology that affects the productivity of resources, and 3) prices of complement and substitute resources.
A. Explain how a change in the demand for a good will change the demand for the resource used to produce the good. Give an example.
B. Changes in technology can cause changes in the productivity of a resource.
Technological change can be economy-wide, industry-specific, or can occur within one firm' s production process. Explain how a change in the productivity of a resource changes the demand for the resource. Give an example.
C. Suppose labor and capital are substitute resources, and the price of capital decreases. What happens to the demand for labor and capital? Do the producers produce more or less of the final good? Explain your answers.
D. Suppose labor and capital are complement resources, and the price of capital decreases. What happens to the demand for labor and capital? Do the producers produce more, less, or the same amount of the final good?