Ebook Economics (18th edition): Part 2

(BQ) Part 2 book Economics has book: The demand for resources; wage determination; rent, interest, and profit; natural resource and energy economics; public goods, externalities, and information asymmetries; public choice theory and the economics of taxation; antitrust policy and regulation, economics and policy,...and other contents.

PART THREE Microeconomics of Resource Markets 12 THE DEMAND FOR RESOURCES 13 WAGE DETERMINATION 14 RENT, INTEREST, AND PROFIT 15 NATURAL RESOURCE AND ENERGY ECONOMICS IN THIS CHAPTER YOU WILL LEARN: The significance of resource pricing How the marginal revenue productivity of a resource relates to a firm’s demand for that resource The factors that increase or decrease resource demand The determinants of elasticity of resource demand 12 How a competitive firm selects its optimal combination of resources The Demand for Resources When you finish your education, you probably will be looking for a new job But why would someone want to hire you? The answer, of course, is that you have a lot to offer Employers have a demand for educated, productive workers like you We need to learn more about the demand for labor and other resources So, we now turn from the pricing and production of goods and services to the pricing and employment of resources Although firms come in various sizes and operate under highly different market conditions, each has a demand for productive resources Firms obtain needed resources from households—the direct or indirect owners of land, labor, capital, and entrepreneurial resources So, referring to the circular flow model (Figure 2.4, page 40), we shift our attention from the bottom loop of the diagram (where businesses supply products that households demand) to the top loop (where businesses demand resources that households supply) This chapter looks at the demand d for economic resources Although the discussion is couched in terms of labor, the principles developed also apply to land, capital, and entrepreneurial ability In Chapter 13 253 we will combine resource (labor) demand with labor supply to analyze wage rates In Chapter 14 we will use resource demand and resource supply to examine the prices of, and returns to, other productive resources Issues relating to the use of natural resources are the subject of Chapter 15 Significance of Resource Pricing Studying resource pricing is important for several reasons: • Money-income determination Resource prices are a major factor in determining the income of households The expenditures that firms make in acquiring economic resources flow as wage, rent, interest, and profit incomes to the households that supply those resources • Cost minimization To the firm, resource prices are costs And to obtain the greatest profit, the firm must produce the profit-maximizing output with the most efficient (least costly) combination of resources Resource prices play the main role in determining the quantities of land, labor, capital, and entrepreneurial ability that will be combined in producing each good or service (see Table 2.1, p 36) • Resource allocation Just as product prices allocate finished goods and services to consumers, resource prices allocate resources among industries and firms In a dynamic economy, where technology and product demand often change, the efficient allocation of resources over time calls for the continuing shift of resources from one use to another Resource pricing is a major factor in producing those shifts • Policy issuess Many policy issues surround the resource market Examples: To what extent should government redistribute income through taxes and transfers? Should government anything to discourage “excess” pay to corporate executives? Should it increase the legal minimum wage? Is the provision of subsidies to farmers efficient? Should government encourage or restrict labor unions? The facts and debates relating to these policy questions are grounded on resource pricing Marginal Productivity Theory of Resource Demand In discussing resource demand, we will first assume that a firm sells its output in a purely competitive product market and hires a certain resource in a purely competitive resource market This assumption keeps things simple and is consistent with the model of a competitive labor market that we will develop in Chapter 13 In a competitive product market, the firm is a “price taker” and can dispose of as little or as 254 much output as it chooses at the market price The firm is selling such a negligible fraction of total output that its output decisions exert no influence on product price Similarly, the firm also is a “price taker” (or “wage taker”) in the competitive resource market It purchases such a negligible fraction of the total supply of the resource that its buying (or hiring) decisions not influence the resource price Resource Demand as a Derived Demand Resource demand is the starting point for any discussion of resource prices Other things equal, the demand for a resource is an inverse relationship between the price of the resource and the quantity of the resource demanded This demand is a derived demand: It is derived from the products that the resources help produce Resources usually not directly satisfy customer wants but so indirectly through their use in producing goods and services Almost nobody wants to consume an acre of land, a John Deere tractor, or the labor services of a farmer, but millions of households want to consume the food and fiber products that these resources help produce Similarly, the demand for airplanes generates a demand for assemblers, and the demands for such services as income-tax preparation, haircuts, and child care create derived demands for accountants, barbers, and child care workers Marginal Revenue Product Because resource demand is derived from product demand, the strength of the demand for any resource will depend on: • The productivity of the resource in helping to create a good or service • The market value or price of the good or service it helps produce A resource that is highly productive in turning out a highly valued commodity will be in great demand On the other hand, a relatively unproductive resource that is capable of producing only a minimally valued commodity will be in little demand And no demand whatsoever will exist for a resource that is phenomenally efficient in producing something that no one wants to buy Productivity Table 12.1 shows the roles of resource productivity and product price in determining resource CHAPTER 12 255 The Demand for Resources TABLE 12.1 The Demand for Labor: Pure Competition in the Sale of the Product (1) Units of Resource (2) Total Product (Output) (3) Marginal Product (MP) ]——————–––—– 7 ]——————–––—– 13 ]——————–––—– 18 ]——————–––—– 22 ]——————–––—– 25 ]——————–––—– 27 ]]——————–––—– 28 demand Here we assume that a firm adds one variable resource, labor, to its fixed plant Columns and give the number of units of the resource applied to production and the resulting total product (output) Column provides the marginal product (MP), or additional output, resulting from using each additional unit of labor Columns through remind us that the law of diminishing returns applies here, causing the marginal product of labor to fall beyond some point For simplicity, we assume that these diminishing marginal returns—these declines in marginal product—begin with the first worker hired Product Price But the derived demand for a resource depends also on the price of the product it produces Column in Table 12.1 adds this price information Product price is constant, in this case at $2, because the product market is competitive The firm is a price taker and will sell units of output only at this market price Multiplying column by column provides the totalrevenue data of column These are the amounts of revenue the firm realizes from the various levels of resource usage From these total-revenue data we can compute marginal revenue product (MRP)—the change in total revenue resulting from the use of each additional unit of a resource (labor, in this case) In equation form, Marginal change in total revenue revenue ϭ _ unit change in resource quantity product The MRPs are listed in column in Table 12.1 Rule for Employing Resources: MRP ‫ ؍‬MRC The MRP schedule, shown as columns and 6, is the firm’s demand schedule for labor To understand why, you must first know the rule that guides a profit-seeking firm in hiring any resource: (4) Product Price $2 2 2 2 (5) Total Revenue, (2) ؋ (4) (6) Marginal Revenue Product (MRP) $ ]—————––––––—–$14 14 ]————––—––––—– – 12 26 ]——––———––––—– – 10 36 ]—————––––––—– – 44 ]———––——––––—– – 50 ]————––—––––—– – 54 ]————––—––––—– – 56 To maximize profit, a firm should hire additional units of a specific resource as long as each successive unit adds more to the firm’s total revenue than it adds to the firm’s total cost Economists use special terms to designate what each additional unit of labor or other variable resource adds to total cost and what it adds to total revenue We have seen that MRP measures how much each successive unit of a resource adds to total revenue The amount that each additional unit of a resource adds to the firm’s total (resource) cost is called its marginal resource cost (MRC) In equation form, Marginal change in total (resource) cost resource ϭ _ unit change in resource quantity cost So we can restate our rule for hiring resources as follows: It will be profitable for a firm to hire additional units of a resource up to the point at which that resource’s MRP is equal to its MRC For example, as the rule applies to labor, if the number of workers a firm is currently hiring is such that the MRP of the last worker exceeds his or her MRC, the firm can profit by hiring more workers But if the number being hired is such that the MRC of the last worker exceeds his or her MRP, the firm is hiring workers who are not “paying their way” and it can increase its profit by discharging some workers You may have recognized that this MRP ‫ ؍‬MRC rule is similar to the MR ϭ MC profit-maximizing rule employed throughout our discussion of price and output determination The rationale of the two rules is the same, but the point of reference is now inputss of a resource, not outputss of a product MRP as Resource Demand Schedule Let’s continue with our focus on labor, knowing that the analysis also applies to other resources In a purely competitive labor market, market supply and market demand PART THREE Microeconomics of Resource Markets establish the wage rate Because each firm hires such a small fraction of market supply, it cannot influence the market wage rate; it is a wage taker, not a wage maker This means that for each additional unit of labor hired, total resource cost increases by exactly the amount of the constant market wage rate The MRC of labor exactly equals the market wage rate Thus, resource “price” (the market wage rate) and resource “cost” (marginal resource cost) are equal for a firm that hires a resource in a competitive labor market Then the MRP ϭ MRC rule tells us that, in pure competition, the firm will hire workers up to the point at which the market wage rate (its MRC) is equal to its MRP In terms of the data in columns and of Table 12.1, if the market wage rate is, say, $13.95, the firm will hire only one worker This is so because the first worker adds $14 to total revenue and slightly less—$13.95—to total cost In other words, because MRP exceeds MRC for the first worker, it is profitable to hire that worker For each successive worker, however, MRC (ϭ $13.95) exceeds MRP (ϭ $12 or less), indicating that it will not be profitable to hire any of those workers If the wage rate is $11.95, by the same reasoning we discover that it will pay the firm to hire both the first and second workers Similarly, if the wage rate is $9.95, three workers will be hired If it is $7.95, four If it is $5.95, five And so forth So here is the key generalization: The MRP schedule constitutes the firm’s demand for labor because each point on this schedule (or curve) indicates the number of workers the firm would hire at each possible wage rate In Figure 12.1, we show the D ϭ MRP curve based on the data in Table 12.1.1 The competitive firm’s resource demand curve identifies an inverse relationship between the wage rate and the quantity of labor demanded, other things equal The curve slopes downward because of diminishing marginal returns Resource Demand under Imperfect Product Market Competition Our analysis of resource demand (here, labor demand) becomes more complex when the firm is selling its product in an imperfectly competitive market, one in which the firm is a price maker Pure monopoly, oligopoly, and monopolistic competition in the product market all mean that Note that we plot the points in Figure 12.1 halfway between succeeding numbers of resource units because MRP is associated with the addition of more unit Thus in Figure 12.1, for example, we plot the MRP of the second unit ($12) not at or but at 1_12 This “smoothing” enables us to sketch a continuously downsloping curve rather than one that moves downward in discrete steps as each new unit of labor is hired FIGURE 12.1 The purely competitive seller’s demand for a resource The MRP curve is the resource demand curve; each of its points relates a particular resource price (ϭ MRP when profit is maximized) with a corresponding quantity of the resource demanded Under pure competition, product price is constant; therefore, the downward slope of the D ϭ MRP curve is due solely to the decline in the resource’s marginal product (law of diminishing marginal returns) P Resource price (wage rate) 256 $14 12 10 D = MRP Quantity of resource demanded Q the firm’s product demand curve is downsloping; when the curve is fixed in place, the firm can increase its sales only by setting a lower price The productivity data in Table 12.1 are retained in columns to in Table 12.2 But here in Table 12.2 we show in column that product price must be lowered to sell the marginal product of each successive worker The MRP of the purely competitive seller of Table 12.1 falls for a single reason: Marginal product diminishes But the MRP of the imperfectly competitive seller of Table 12.2 falls for two reasons: Marginal product diminishes andd product price falls as output increases We emphasize that the lower price accompanying each increase in output (total product) applies not only to the marginal product of each successive worker but also to all prior output units that otherwise could have been sold at a higher price Observe that the marginal product of the second worker is units of output These units can be sold for $2.40 each, or, as a group, for $14.40 But $14.40 is not the MRP of the second worker To sell these units, the firm must take a 20-cent price cut on the units produced by the first worker—units that otherwise could have been sold for $2.60 each Thus, the MRP of the second worker is only $13 [ϭ $14.40 Ϫ (7 ϫ 20 cents)], as shown Similarly, the third worker adds units to total product, and these units are worth $2.20 each, or $11 total But to sell these units, the firm must take a 20-cent price cut on the 13 units produced by the first two workers So the third worker’s MRP is only $8.40 [ϭ $11 Ϫ (13 ϫ 20 cents)] The other figures in column are derived similarly CHAPTER 12 257 The Demand for Resources TABLE 12.2 The Demand for Labor: Imperfect Competition in the Sale of the Product (1) Units of Resource (2) Total Product (Output) (3) Marginal Product (MP) ]——————–––—– 7 ]——————–––—– 13 ]——————–––—– 18 ]——————–––—– 22 ]——————–––—– 25 ]——————–––—– 27 ]]——————–––—– 28 $2.80 2.60 2.40 2.20 2.00 1.85 1.75 1.65 In Figure 12.2 we graph the MRP data from Table 12.2 and label it “D ϭ MRP (imperfect competition).” The broken-line resource demand curve, in contrast, is that of the purely competitive seller represented in Figure 12.1 A comparison of the two curves demonstrates that, other things equal, the resource demand curve of an imperfectly competitive seller is less elastic than that of a purely competitive seller Consider the effects of an identical percentage decline in the wage rate (resource price) from $11 to $6 in Figure 12.2 Comparison of the two curves reveals that the imperfectly competitive seller (solid curve) does not expand the quantity of labor it employs by as large a percentage as does the purely competitive seller (broken curve) FIGURE 12.2 The imperfectly competitive seller’s demand curve for a resource An imperfectly competitive seller’s resource demand curve D (solid) slopes downward because both marginal product and product price fall as resource employment and output rise This downward slope is greater than that for a purely competitive seller (dashed resource demand curve) because the pure competitor can sell the added output at a constant price P $18 (5) Total Revenue, (2) ؋ (4) (6) Marginal Revenue Product (MRP) $ ]—————–––—– $18.20 18.20 ]————–––––—– 13.00 31.20 ]————–––––—– 8.40 39.60 ]————–––––—– 4.40 44.00 ]———––—–––—– 2.25 46.25 ]————–––––—– 1.00 47.25 ]————–––––—– Ϫ1.05 46.20 It is not surprising that the imperfectly competitive producer is less responsive to resource price cuts than the purely competitive producer The imperfect competitor’s relative reluctance to WORKED PROBLEMS employ more resources, and produce more outW 12.1 put, when resource prices Resource demand fall reflects its tendency to restrict output in the product market Other things equal, the imperfectly competitive seller produces less of a product than a purely competitive seller In producing that smaller output, it demands fewer resources (Key Question 2) Market Demand for a Resource The total, or market, demand curve for a specific resource shows the various total amounts of the resource that firms will purchase or hire at various resource prices, other things equal Recall that the total, or market, demand curve for a productt is found by summing horizontally the demand curves of all individual buyers in the market The market demand curve for a particular resource is derived in essentially the same way—by summing horizontally the individual demand or MRP curves for all firms hiring that resource QUICK REVIEW 12.1 16 Resource price (wage rate) (4) Product Price 14 12 D = MRP R (pure comp competitio etition n) 10 D = MRP (imp (im perrfect c com petitio e n)) 2 –2 Quantity of resource demanded Q • To maximize profit, a firm will purchase or hire a resource in an amount at which the resource’s marginal revenue product equals its marginal resource cost (MRP ϭ MRC) • Application of the MRP ϭ MRC rule to a firm’s MRP curve demonstrates that the MRP curve is the firm’s resource demand curve In a purely competitive resource market, resource re rce p pri rice ce ((th thee wage age rrat ate) e) eequal als MR MRC C • The resource demand curve of a purely competitive seller is downsloping solely because the marginal product of the resource diminishes; the resource demand curve of an imperfectly competitive seller is downsloping because marginal product diminishes andd product price falls as output is increased 258 PART THREE Microeconomics of Resource Markets Changes in Product Demand CONSIDER THIS Superstars In what economist Robert Frank calls “winner-take-allmarkets,” a few highly talented performers have huge earnings relative to the average performers in the market Because consumers and firms seek out “top” performers, small differences in talent or popularity get magnified into huge differences in pay In these markets, consumer spending gets channeled toward a few performers The media then “hypes” these individuals, which further increases the public’s awareness of their talents Many more consumers then buy the stars’ products Although it is not easy to stay on top, several superstars emerge The high earnings of superstars results from the high revenues they generate from their work Consider Beyoncé Knowles If she sold only a few thousand songs and attracted only a few hundred fans to each concert, the revenue she would produce—her marginal revenue product—would be quite modest So, too, would be her earnings But consumers have anointed Beyoncé as queen of the R&B and hip-hop portion of pop culture The demand for her music and concerts is extraordinarily high She sells millions of songs, not thousands, and draws thousands to her concerts, not hundreds Her extraordinarily high net earnings derive from her extraordinarily high MRP So it is for the other superstars in the “winner-take-all markets.” Influenced by the media, but coerced by no one, consumers direct their spending toward a select few The resulting strong demand for these stars’ services reflects their high MRP And because top talent (by definition) is very limited, superstars receive amazingly high earnings Determinants of Resource Demand What will alter the demand for a resource—that is, shift the resource demand curve? The fact that resource demand is derived from product demandd and depends on resource productivity suggests two “resource demand shifters.” Also, our analysis of how changes in the prices of other products can shift a product’s demand curve (Chapter 3) suggests another factor: changes in the prices of otherr resources Other things equal, an increase in the demand for a product will increase the demand for a resource used in its production, whereas a decrease in product demand will decrease the demand for that resource Let’s see how this works The first thing to recall is that a change in the demand for a product will change its price In Table 12.1, let’s assume that an increase in product demand boosts product price from $2 to $3 You should calculate the new resource demand schedule (columns and 6) that would result and plot it in Figure 12.1 to verify that the new resource demand curve lies to the right of the old demand curve Similarly, a decline in the product demand (and price) will shift the resource demand curve to the left This effect—resource demand changing along with product demand—demonstrates that resource demand is derived from product demand Example: Assuming no offsetting change in supply, a decrease in the demand for new houses will drive down house prices Those lower prices will decrease the MRP of construction workers, and therefore the demand for construction workers will fall The resource demand curve such as in Figure 12.1 or Figure 12.2 will shift to the left Changes in Productivity Other things equal, an increase in the productivity of a resource will increase the demand for the resource and a decrease in productivity will reduce the demand for the resource If we doubled the MP data of column in Table 12.1, the MRP data of column would also double, indicating a rightward shift of the resource demand curve The productivity of any resource may be altered over the long run in several ways: • Quantities of other resourcess The marginal productivity of any resource will vary with the quantities of the other resources used with it The greater the amount of capital and land resources used with, say, labor, the greater will be labor’s marginal productivity and, thus, labor demand • Technological advance Technological improvements that increase the quality of other resources, such as capital, have the same effect The better the quality of capital, the greater the productivity of labor used with it Dockworkers employed with a specific amount of real capital in the form of unloading cranes are more productive than dockworkers with the same amount of real capital embodied in older conveyor-belt systems • Quality of the variable resource Improvements in the quality of the variable resource, such as labor, will CHAPTER 12 259 The Demand for Resources increase its marginal productivity and therefore its demand In effect, there will be a new demand curve for a different, more skilled, kind of labor All these considerations help explain why the average level of (real) wages is higher in industrially advanced nations (for example, the United States, Germany, Japan, and France) than in developing nations (for example, Nicaragua, Ethiopia, Angola, and Cambodia) Workers in industrially advanced nations are generally healthier, better educated, and better trained than are workers in developing countries Also, in most industries they work with a larger and more efficient stock of capital goods and more abundant natural resources This creates a strong demand for labor On the supply side of the market, labor is scarcer relative to capital in industrially advanced than in most developing nations A strong demand and a relatively scarce supply of labor result in high wage rates in the industrially advanced nations Changes in the Prices of Other Resources Changes in the prices of other resources may change the demand for a specific resource For example, a change in the price of capital may change the demand for labor The direction of the change in labor demand will depend on whether labor and capital are substitutes or complements in production Substitute Resources Suppose the technology in a certain production process is such that labor and capital are substitutable A firm can produce some specific amount of output using a relatively small amount of labor and a relatively large amount of capital, or vice versa Now assume that the price of machinery (capital) falls The effect on the demand for labor will be the net result of two opposed effects: the substitution effect and the output effect • Substitution effectt The decline in the price of machinery prompts the firm to substitute machinery for labor This allows the firm to produce its output at lower cost So at the fixed wage rate, smaller quantities of labor are now employed This substitution effectt decreases the demand for labor More generally, the substitution effect indicates that a firm will purchase more of an input whose relative price has declined and, conversely, use less of an input whose relative price has increased • Output effectt Because the price of machinery has fallen, the costs of producing various outputs must also decline With lower costs, the firm finds it profitable to produce and sell a greater output The greater output increases the demand for all resources, including labor So this output effectt increases the demand for labor More generally, 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 when the price of the other input rises • Net effectt The substitution and output effects are both present when the price of an input changes, but they work in opposite directions For a decline in the price of capital, the substitution effect decreases the demand for labor and the output effect increases it The net change in labor demand depends on the relative sizes of the two effects: If the substitution effect outweighs the output effect, a decrease in the price of capital decreases the demand for labor If the output effect exceeds the substitution effect, a decrease in the price of capital increases the demand for labor Complementary Resources Recall from Chapter that certain products, such as computers and software, are complementary goods; they “go together” and are jointly demanded Resources may also be complementary; an increase in the quantity of one of them used in the production process requires an increase in the amount used of the other as well, and vice versa Suppose a small design firm does computer-assisted design (CAD) with relatively expensive personal computers as its basic piece of capital equipment Each computer requires exactly one design engineer to operate it; the machine is not automated—it will not run itself—and a second engineer would have nothing to Now assume that a technological advance in the production of these computers substantially reduces their price There can be no substitution effect because labor and capital must be used in fixed proportions, one person for one machine Capital cannot be substituted for labor But there iss an output effect Other things equal, the reduction in the price of capital goods means lower production costs Producing a larger output will therefore be profitable In doing so, the firm will use both more capital and more labor When labor and capital are complementary, a decline in the price of capital increases the demand for labor through the output effect We have cast our analysis of substitute resources and complementary resources mainly in terms of a decline in the price of capital Table 12.3 summarizes the effects of an increase in the price of capital on the demand for labor Please study it carefully Now that we have discussed the full list of the determinants of labor demand, let’s again review their effects Stated in terms of the labor resource, the demand for 260 PART THREE Microeconomics of Resource Markets TABLE 12.3 The Effect of an Increase in the Price of Capital on the Demand for Labor, DL (2) Increase in the Price of Capital (1) Relationship of Inputs (a) Substitution Effect (b) Output Effect (c) Combined Effect Substitutes in production Labor substituted for capital Production costs up, output down, and less of both capital and labor used Complements in production No substitution of labor for capital Production costs up, output down, and less of both capital and labor used DL increases if the substitution effect exceeds the output effect; DL decreases if the output effect exceeds the substitution effect DL decreases labor will increase (the labor demand curve will shift rightward) when: • The demand for (and therefore the price of ) the product produced by that labor increases • The productivity (MP) 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 Be sure that you can “reverse” these effects to explain a decrease in labor demand Table 12.4 provides several illustrations of the determinants of labor demand, listed by the categories of determinants we have discussed You will benefit by giving them a close look Occupational Employment Trends Changes in labor demand have considerable significance since they affect wage rates and employment in specific occupations Increases in labor demand for certain occupational groups result in increases in their employment; decreases in labor demand result in decreases in their employment For illustration, let’s first look at occupations for which labor demand is growing and then examine occupations for which it is declining (Wage rates are the subject of the next chapter.) The Fastest-Growing Occupations Table 12.5 lists the 10 fastest-growing U.S occupations for 2006 to 2016, as measured by percentage changes and projected by the Bureau of Labor Statistics It is no coincidence that the service occupations dominate the list In general, the demand for service workers in the United States is rapidly outpacing the demand for manufacturing, construction, and mining workers Of the 10 fastest-growing occupations in percentage terms, three—personal and home care aides (people who provide home care for the elderly and disabled), home health care aides (people who provide short-term medical care after discharge from hospitals), and medical assistants— are related to health care The rising demands for these TABLE 12.4 Determinants of Labor Demand: Factors That Shift the Labor Demand Curve Determinant Examples Change in product demand Gambling increases in popularity, increasing the demand for workers at casinos Consumers decrease their demand for leather coats, decreasing the demand for tanners The Federal government increases spending on homeland security, increasing the demand for security personnel An increase in the skill levels of physicians increases the demand for their services Computer-assisted graphic design increases the productivity of, and demand for, graphic artists An increase in the price of electricity increases the cost of producing aluminum and reduces the demand for aluminum workers The price of security equipment used by businesses to protect against illegal entry falls, decreasing the demand for night guards The price of cell phone equipment decreases, reducing the cost of cell phone service; this in turn increases the demand for cell phone assemblers Health-insurance premiums rise, and firms substitute part-time workers who are not covered by insurance for full-time workers who are Change in productivity Change in the price of another resource CHAPTER 12 261 The Demand for Resources TABLE 12.5 The 10 Fastest-Growing U.S Occupations in Percentage Terms, 2006–2016 TABLE 12.6 The 10 Most Rapidly Declining U.S Occupations in Percentage Terms, 2006–2016 Employment, Thousands of Jobs Employment, Thousands of Jobs Occupation Network systems and data communication analysts Personal and home care aides Home health aides Software engineers, applications Veterinary technicians 2006 2016 262 767 787 402 1156 1171 Percentage Increase* 53.4 50.6 48.7 507 71 733 100 44.6 41.0 Personal financial advisors 176 Make-up artists Medical assistants 417 Veterinarians 62 Substance abuse and behavioral disorder counselors 83 248 565 64 41.0 39.8 35.4 35.0 112 34.3 *Percentages and employment numbers may not reconcile due to rounding Source: Bureau of Labor Statistics, “Employment Projections,” www.bls.gov v types of labor are derived from the growing demand for health services, caused by several factors The aging of the U.S population has brought with it more medical problems, the rising standard of income has led to greater expenditures on health care, and the continued presence of private and public insurance has allowed people to buy more health care than most could afford individually Two of the fastest-growing occupations are directly related to computers The increase in the demand for network systems and data communication analysts and computer software engineers arises from the rapid rise in the demand for computers, computer services, and Internet use It also results from the rising marginal revenue productivity of these particular workers, given the vastly improved quality of the computer and communications equipment they work with Moreover, price declines on such equipment have had stronger output effects than substitution effects, increasing the demand for these kinds of labor The Most Rapidly Declining Occupations In contrast, Table 12.6 lists the 10 U.S occupations with the greatest projected job loss (in percentage terms) between 2006 and 2016 Several of the occupations owe their declines mainly to “labor-saving” technological change For example, automated or computerized equipment has greatly reduced the need for file clerks, model and pattern makers, and telephone operators The advent of digital photography Occupation Photographic processing machine operators File clerks Model makers and pattern makers, wood Telephone operators Shoe machine operators Forging machine operators Electrical coil winders, tapers, and finishers Fabric and apparel pattern makers Textile machine operators Sewing machine operators 2006 2016 Percentage Increase* 49 234 25 137 Ϫ49.8 Ϫ41.3 27 31 16 21 Ϫ40.3 Ϫ39.5 Ϫ35.7 Ϫ30.4 23 16 Ϫ30.5 122 233 88 170 Ϫ28.6 Ϫ27.9 Ϫ27.2 *Percentages and employment numbers may not reconcile due to rounding Source: Bureau of Labor Statistics, “Employment Projections,” www.bls.gov explains the projected decline in the employment of people operating photographic processing equipment Three of the occupations in the declining employment list are related to textiles and apparel The U.S demand for these goods is increasingly being filled through imports Those jobs are therefore rapidly disappearing in the United States As we indicated, the “top-10” lists shown in Tables 12.5 and 12.6 are based on percentage changes In terms of absolute job growth and loss, the greatest projected employment growth between 2006 and 2016 is for registered nurses (587,000 jobs) and retail sales persons (557,000 jobs) The greatest projected absolute decline in employment is for stock clerks (Ϫ131,000) and cashiers (Ϫ116,000 jobs) Elasticity of Resource Demand The employment changes we have just discussed have resulted from shifts in the locations of resource demand curves Such changes in demand must be distinguished from changes in the quantity of a resource demanded caused by a change in the price of the specific resource under consideration Such a change is caused not by a shift of the demand curve but, rather, by a movement from one point to another on a fixed resource demand curve Example: In Figure 12.1 we note that an increase in the wage rate from $5 to $7 will reduce the quantity of labor demanded from to units This is a change in the quantity of labor demandedd as distinct from a change in demand ... ]——————–––—– 18 ]——————–––—– 22 ]——————–––—– 25 ]——————–––—– 27 ]]——————–––—– 28 $2. 80 2. 60 2. 40 2. 20 2. 00 1.85 1.75 1.65 In Figure 12. 2 we graph the MRP data from Table 12. 2 and label it “D ϭ MRP... operators Sewing machine operators 20 06 20 16 Percentage Increase* 49 23 4 25 137 Ϫ49.8 Ϫ41.3 27 31 16 21 Ϫ40.3 Ϫ39.5 Ϫ35.7 Ϫ30.4 23 16 Ϫ30.5 122 23 3 88 170 28 .6 27 .9 27 .2 *Percentages and employment... $191,410 148,810 113,890 106 ,20 0 95,510 84 ,24 0 64,910 62, 480 50,670 48,100 32, 190 25 ,860 24 ,530 23 ,790 22 , 820 16,860 28 2 PART THREE Microeconomics of Resource Markets W FIGURE 13.9 Labor demand,