Exploring The Supply Curves of Resources, And Other Fun Topics

One of the three fundamental tasks of a firm is to hire or buy inputs, and this part of the business is shown in economics with supply curves for resources. The table below shows two supply curves that represent two different markets of resources. In which of these markets is the firm a price taker?
In which is it a price searcher?

Marginal resource cost is the cost of adding another unit of resource. In the two tables below, fill in the marginal-resource-cost columns. (If you have problems, try to first compute the total cost, and from that get marginal resource cost.)

Market for Labor

Market for Machines
Wage
Amount of
Labor Supplied
Marginal
Resource Cost
Price
Amount of
Capital Supplied
Marginal
Resource Cost
$10
1
$
$10
1
$
$10
2
$
$11
2
$
$10
3
$
$12
3
$
$10
4
$
$13
4
$
$10
5
$
$14
5
$

A supply curve is a boundary that limits buyers. What will the supply curve for labor shown above look like if we draw it? The region in which the firm is allowed by this supply curve is the area of the supply curve.

With the first supply curve above, where price and hence average resource cost is constant, marginal resource cost is price. In the second supply curve, where price is rising and hence average resource cost is rising, marginal resource cost is price.
What should matter to the firm when it decides how much of a resource to buy, the price or the marginal resource cost?
The supply curve that a monopsonist faces is similar to .

Suppose the firm facing the second supply curve can buy the first at $10, then buy another for $11.00 but still keep buying the first at $10, etc. This pattern of pricing is a form of price discrimination. What would the marginal resource cost of the fourth unit of capital be in this case? $

Some introductory courses in economics explain income and substitution effects while other introductory courses leave them for more advanced courses. Here are a few questions that should let you know what is involved in them and why they can sometimes be important. For most goods and services the income effect is very small and can be ignored. Below are some exceptions.

a) Suppose that the price of automobiles rises. As a result, you can afford to buy goods, and this income effect encourages you to buy car services. The substitution or incentive effect the attractiveness of buying cars relative to other goods and services. Hence, what can we predict?

b) Suppose wages rise. As a result, people will be able to afford goods and services, and thus the income effect encourages them to buy leisure, which means they want to work . This is the income effect. The substitution or incentive effect says that the attractiveness of earning money relative to other uses of time has . Hence, what can we predict?

c) Suppose interest rates rise. As a result, the possible consumption patterns over our lifetime are and this income effect should cause people to. The substitution or incentive effect notes that consuming in the future is attractive to consuming in the present, and this should cause saving to . Hence, what can we predict?

d) Suppose rents fall. As a result, you can afford goods and services including housing, and this income effect encourages you to buy housing. The substitution or incentive effect the attractiveness of housing relative to other goods and services. Hence, what can we predict?

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