Chapter 27 short review

In chapter 27, we will start learning more about resources. These are the first half of the topics that this preview will be focused on:

1. Importance of pricing a resource and factors contribute to it
2. The marginal productivity theory of resource demand
3. What determines resource demand 

1.  There are many things that go into determining the price of a resource.A firm has to take many things into account because it is a cost that they have to take in order to produce a product. The book explains 4 different factors that are taken into account. The four major factors are money-income determination ( firms come up with a price for a housing unit depending on the price of the resources used to build that house) , resource allocation (this is finding out how versatile a resource is to a firm) , cost minimization ( firms will find the way to produce the most profit-maximizing output), and policy issues ( should the government have any say in things that are happening in the market or not ). 

2.  In a competitive resource market, a firm is a "wage taker." The book mentions, that the demand for resources is a derived demand. Which is: taken from the products that the firms help produce. For example, paper is needed for many things, but it doesn't just come out of now where, it comes mainly from trees. But, it is inconvenient for individuals to make their own paper, so we have factories that make the papers for the companies that need it so they can sell to the individuals.  There are two different equations in this section of the chapter that are important: marginal revenue product and marginal resource product. 

1.  Marginal Revenue Product : change in total revenue / unit change in resource quantity 
2. Marginal Resource Cost : change in total ( resource) cost / unit change in resource quantity 

3.  So what exactly determines resource demands? There are two main things that can shift the demand curve for a resource directly. The first one is a change in demand. If there is an increase in the demand of a product, then the demand for a resource will increase as well, as well as a decrease in demand for a product will cause a decrease in demand of a resource. That makes sense and easy to remember. The second factor in the resource demand is change in productivity. This is where it gets slightly, just ever so slightly, more difficult as there are a couple of things that can affect productivity. the, being the quantities of other resources, technological advances and the quality of the variable resource. But this is similar to the last chapters that we have covered, so it is nothing completely new. There are other things that can affect the demand for a resource, for example the change in price for that resource or the change of price of another resource that can substitute the first resource. 

That is all for a tiny review of chapter 27, it isn't about all of it, but just the first half.