27) Demand for Economic Resources

I. Factor market models   
      A. Factors (economic resources are used to
            make goods and services sold in product
            markets.
      B. Four factor markets will be examined.
           Factor                   Income Received
           1. Land                  Rent
           2. Labor                Wages
           3. Capital              Interest
           4. Enterprise        Profit
     C. Economic concerns to be evaluated when 
         analyzing factor markets include:
         1. Amount and proportion of factors hired 
         2. Amount & distribution of factor income 
         3. Economic efficiency of different model

II. Significance of resource (factor) pricing significance
   A. Factor allocation (land, labor, capital, enterprise) will be analyzed.
   B. The combination of "factors" used in production determines 
       1. economic efficiency 
       2. income distribution among factor owners (rent, wages, interest, and profit)

II. Determining resource prices
    A. Supply and demand is the key mechanism for determining resource prices.
    B. This chapter provides an overview of what determines resource demand. 
    C. Monopoly interference will come from
        1. Big companies
        2. Big unions
        3. Big governments
        4. Big buying groups like American Association of Retired Persons 
III. Resource demand is "derived" from
      A. Factor productivity
      B. Final product profitability (selling price related to cost)
      C. A highly productive resource making an expensive, highly profitable product,
           commands the highest factor price. The idea is to work for a successful 
           company in an expanding industry.
IV. Determining resources demand
      A. Demand for resources is called marginal revenue product (MRP)
      B. Marginal physical product (MPP) is the change in total production 
          which results from hiring one more unit of a resource.
      B. Marginal revenue product (MRP) is the change in total revenue 
          which results from hiring one more unit of a resource

IV! Determining resources demand
      A. Demand for resources is called marginal revenue product (MRP)
          1. Marginal physical product (MPP) is the change in total production 
              which results from hiring one more unit of a resource.
          2. Marginal revenue product (MRP) is the change in total revenue 
              which results from hiring one more unit of a resource
      B. Labor will be the variable resource examined.
      C. Imperfectly competitive product market 
           1 Price of product produced must be lowered to sell more of the product.
           2. As a result resource demand is more inelastic.
           3. Inelastic demand for a resource means the purchaser of the resource
               can maximize profit by restricting output.

VII. Factor relationships affect demand.
       A. When resources are substitutes for each other such as laboror
            and capital, they compete for investment dollars.
            1. An increase in the productivity of capital will cause the MRP
                of capital to increase relative to the MRP per dollar of labor. 
            2. As a result, capital will be substituted for labor. 
            3. The process of substituting more efficient capital for less
                 efficient labor is called the substitution effect. It began
                 in the Stone Age, accelerated dramatically with the Industrial
                 Revolution and continues to accelerate today. 
            4. An automated welding machine replaces people making
                welders less valuable.
B. When resources are complements to each other such as labor and
     capital, their price and productivity affect each other.
     1. A decrease in the price of capital or an increase in its productivity
         will cause the MRP per dollar of capital to increase. 
     2. This increase in efficiency will cause total output to increase and
          with it the demand (MRP) for all resources including labor. 
     3. The process of increasing the MRP of labor by using capital is
          called the output effect. It began in the Stone Age, accelerated
          dramatically with the Industrial Revolution and continues to
          accelerate today. 
     4. A powered hammer makes carpenters more productive, less
          expensive, and increase the value of carpenters.

VIII. Elasticity of factor demand
      A. 
        
        B. Many factors affecting resource elasticity of demand
            1. Diminishing return as the faster diminishing returns
                begin, the quicker MPP decreases and the more inelastic
                is resource demand.
           2. High elasticity of product demand increases factor elasticity
               of demand
           3. Number and suitability of substitutes increase elasticity.
               If there are suitable resources available to switch to, 
               firms will switch rather than pay more for a given resource
           4. Importance of the resource: resources that represent a high proportion
               of a product's total cost will have high elasticity of demand as the
               possible cost saving is substantial and the search for a substitute will
               be intensive.
           5.Time increases elasticity: given enoug