Bài giảng Understanding Economics - Chapter 7 Wages, Rent, Interest, and Profit

Understanding EconomicsChapter 7Wages, Rent, Interest, and ProfitCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.2nd Editionby Mark Lovewell and Khoa NguyenChapter Objectives (a)In this chapter you will:consider how businesses choose the profit-maximizing amount of a resource they use when they are price-takers in the product markets in which they sell their productsLook at the case where businesses are price-makers in their product markets and analyze the factors that change resource demand and affect the price elasticity of resource demandCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Chapter Objectives (b)continuedlearn about the factors that affect wages, including productivity, education, experience, job conditions, regional disparities, market power, and discriminationlook at the incomes from other resources—rent, interest, and profitCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Demand for ResourcesThe demand for resources is based on the demand for the products they produceAccording to marginal productivity theory businesses use resources based on how much extra profit these resources provideThree factors are importanta resource’s marginal costa resource’s marginal productthe marginal revenue of new units of outputCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.A Product and Resource Price-TakerIf a business is a price-taker in its product and resource marketsthe resource’s marginal cost is constantthe resource’s marginal product variesthe marginal revenue of new units of output is constantCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Profit-Maximizing Employment RuleThe profit-maximizing employment rule states that profits are maximized when marginal revenue product equals marginal resource costmarginal revenue product is the change in total revenue when employing a new unit of a resourcemarginal resource cost is the change in total cost when employing a new unit of a resourceLabour Demand and Supply for a Product and Resource Price-Taker Figure 7.1, Page 167012345MRP = DbaLabour Demand and Supply Schedules for a Strawberry FarmTotal Product(P)(q)(kilograms)Labour(L)(no. of workers)Marginal Product(MP)(Δq/ΔL)(kilograms)Output Price(P)($ per kilogram)TotalRevenue(TR)(P x q)MarginalRevenueProduct(MRP = ΔTR)Marginal Resource Cost(MRC = W)($ per hour)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.0101824283010864222222202036485660 20 (a) 16 (b) 12 (c) 8 (e) 4 (f)1010101010> (d)310014No. of WorkersLabour Demand and Supply Curves for a Strawberry FarmWage ($ per hour)4816202125MRC = SbbcdefCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Market Demand and SupplyIn a competitive labour marketthe market demand curve is found by horizontally summing the labour demand curves for all businesses in the industrythe market supply curve shows the total number of workers offering their services in this industry at each wageDemand and Supply in a Competitive Labour Market Figure 7.2, Page 170Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.18141062SMLabour Demand and Supply Schedulesfor Strawberry Farm WorkersLabour Demanded(DM)Wage(W)($ per hour)Labour Supplied(SM)(no. of workers)(market)(no. of workers)(farm)(no. of workers)(market)123451000200030004000500050004000300020001000DMe3000100100020004000 No. of WorkersLabour Demand and Supply Curvesfor Strawberry Farm Workers Wage ($ per hour)2614185000Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.A Product Price-Maker/ Resource Price-TakerIf a business is a price-maker in its product market and a price-taker in its resource marketthe resource’s marginal cost is constantthe resource’s marginal product variesthe marginal revenue of the new units of output falls as quantity risesLabour Demand and Supply for a Product Price-Maker/Resouce Price Taker Figure 7.3, Page 172Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.01234Labour Demand and Supply Schedulesfor Nirvana CushionsTotal Product(P)(q)(no. of cushions)Labour(L)(no. of workers)Marginal Product(MP)(Δq/ΔL)(no. of cushions)Output Price(P)TotalRevenue(TR)(P x q)MarginalRevenueProduct(MRP = ΔTR)Marginal ResourceCost(MRC = W)($ per hour)0479104321108654032424540 32 (g) 10 (h) 3 (j) -5 (k)7777> (i)MRP = DbgMRC = Sb720134No. of WorkersLabour Demand and Supply Curvesfor Nirvana CushionsWage ($ per hour)332105-5hijkCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Changes in Resource DemandThree factors can cause changes in resource demandproduct demandother resource pricesan increase in a complementary resource’s price causes a decrease in demand (and vice versa)an increase in a substitute resource’s price causes an increase in demand (and vice versa)technological innovationCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Price Elasticity of Resource DemandFour factors can affect the price elasticity of resource demandthe rate of decline in marginal productthe price elasticity of product demandthe proportion of total coststhe availability of substitute resourcesCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Wage Determinants (a)There are seven main wage determinantslabour productivityeducationexperiencejob conditionsregional disparitiesmarket powerdiscriminationDistribution of Earnings (1997)Figure 7.4, Page 176Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.EarningsUnder $5000$5000 - $9999$10 000 - $14 999$15 000 - $19 999$20 000 - $24 999$25 000 - $29 999$30 000 - $34 999$35 000 - $39 999$40 000 - $44 999$45 000 - $49 999$50 000 - $49 999$60 000 and overPercentage of All Earners 14.5 10.9 9.7 8.3 9.0 8.5 8.1 6.5 5.6 3.9 6.6 8.3 100.0Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.EducationEducationusually adds to a worker’s pay but has opportunity costs as wellserves two main purposes (consumption and investment in human capital) A student will undertake an educational program if its benefits (both monetary and nonmonetary) exceed its opportunity costsEducation and Average Family Income (1997) Figure 7.5, Page 177Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.EducationUniversity DegreePost-secondary diplomaSome post-secondaryHigh school graduateSome high school0 to 8 years of schoolAverage Family Incomes $82 570 58 566 52 942 53 456 47 358 39 633Age and Average Family Income (1997) Figure 7.6, Page 179Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Age of Family Head (years)Average Family Income($ thousands)20 34-44 45-54 55-59 60-64 65+406080 25-34 0up to24Age ofFamilyHead(years)AverageFamilyIncomeup to 2425-3435-4445-5455-5960-6465+$33 98951 73061 04768 82463 69953 01343 351Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Labour UnionsThere are two main types of labour unionsindustrial unions include all workers in a certain industrycraft unions include workers in a particular occupation and restrict who can be membersCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Job DiscriminationJob discrimination can take two main formsdirect job discrimination is the payment of individuals different amounts for substantially the same worka discriminatory division of jobs (e.g. secretaries and warehouse clerks)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.RentRent is the payment for the use of a productive resource available in only a fixed amountland receives a rent because its supply is perfectly elasticthe equilibrium rent for a particular type of land varies with demand for this land (e.g. a rise in the price of beef affects the rent for ranching land)Equilibrium in the Market LandFigure 7.7, Page 181Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.14121086Demand and SupplySchedules for land(millions of hectares)Rent($ per year)QuantitySupplied(S)QuantityDemanded(D)456786666610 60 Millions of HectaresDemand and Supply Curves for Land Rent ($ per year)2 14681214 23 4 5 7 8 9SDeChanges in the Demand for LandFigure 7.8, Page 182Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.14121086Demand and SupplySchedules for land(millions of hectares)Rent($ per year)QuantitySupplied(S)QuantityDemanded(D0)(D1)4567856789666661012 60 Millions of HectaresDemand and Supply Curves for Land Rent ($ per year)2 146814 23 4 5 7 8 9SD0D1abInterestInterest is related to the supply of capital resources, and can also be viewed as a financial income.When money is lent, the lender requires repayment not only of the loan principal but also a charge for the use of the money. Interest is payment for the opportunity cost of the money being used. Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Range of Interest RatesFour factors affect interest ratescredit riskthe loan periodcollateralthe size of the loanCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.ProfitCritics of capitalism attribute profit to the power of business owners rather than to their contributions to the economy.Profit can also be seen as a return to entrepreneurs for their risk-taking. From this perspective, it is a an essential private incentive for taking risks.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Reaping the RewardsDavid Ricardo developed a theory of rent based on varying grades of landAccording to his theory a rise in the demand for wheat increases wheat prices and increases rent as poorer land is brought into cultivationHe predicted that higher wheat prices would lead to higher money wages and lower profitsRicardo’s Theory of RentFigure A, Page 189Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.510C0ABD Grade of LandLand Rents per Hectare Wage ($ per hour)100200300400Land Rents per HectareWheatPrice($)(when production costs are $100 per hectare)Grade A(50 kgoutput)Grade B(40 kgoutput)Grade C(20 kgoutput)Grade D(10 kgoutput)150[($5 x 50) – $100]400[($5 x 50) - $100]1003000100notcultivated0$150$400$100$300$100$0$0The Role of Labour Unions (a)Unions represent members’ interests through collective bargaining. Both unions and employers make collective agreements which bind both parties for a given period.When agreement is impossible, mediation or arbitration can be used to bring about a settlementCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.The Role of Labour Unions (b)If no settlement is reached, union members can work to rule, or stage a strike.Employers may use a lockout to bring about a settlement.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Unions and the Canadian Economy (a)Union membership has grown in the past 70 years, but as a proportion of the total labour force this growth has stagnated during the past quarter century.Unionization rates vary significantly by industry, with male-dominated occupations have a slightly higher rate than female-dominated occupations.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Union Membership in CanadaFigure A, Page 192Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.450040003500300025002000150010005000Workers (thousands)Union Membership192119311941195119611971198119911998Year192119311941195119611971198119911998Union Membership as a Percentage ofNonagricultural Paid Employment4035302520151050YearUnion Membership by Industry and Gender Figure B, Page 193Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Industry (1999)Education ServicesPublic AdministrationHealth CareTransportationManufacturingTradeFinanceAgricultureGender (1995)MenWomenPercentage of PaidWorkers Who AreUnion Members 73.6 70.0 54.7 44.4 33.7 13.9 9.7 3.8 34.4 30.0Understanding Economics2nd editionby Mark LovewellChapter 7The EndCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.