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Product and resource markets: points of symmetry.

Article Excerpt
Abstract

For an introductory-level course, one useful teaching strategy is to regularly make students aware of the connections and symmetries between results established in different parts of the course. For example, in the introductory microeconomics course, it is straightforward to connect the behavior of a product price-maker and a resource price-maker. After identifying a number of general points of symmetry between them, this paper more carefully examines the connection between the mark-up pricing behavior of a product seller and the mark-down pricing behavior of a resource hirer. It then illustrates the connection between third-degree price and wage discrimination for one particular case.

Introduction

For an introductory-level course, one useful teaching strategy for greater understanding is to regularly make students aware of the connections and symmetries between results established in different parts of the course. [1] For example, in the introductory microeconomics course, an understanding of firm behavior in resource markets can be enhanced by reminding students of the results established for firm behavior in product markets. Because the logic of marginal reasoning developed in order to explain the latter is quite similar to that used to explain the former, by making such connections clear, not only may understanding resource market results be easier to achieve, understanding product market results is reinforced. After identifying a number of general points of symmetry between them, this paper more carefully examines the close connection between the mark-up pricing of a product seller and the mark-down pricing behavior of a resource hirer. It then illustrates the connection between third-degree price and wage discrimination for one particular case.

General Points of Symmetry

It is straightforward to connect the behavior of a product price-taker (ppt), a firm that is assumed powerless to affect the market-determined product price, and a resource price-taker (rpt), a firm that is assumed powerless to affect the market-determined resource price, or wage; whereas the former faces a horizontal product demand schedule, the latter confronts a horizontal resource (labor) supply schedule, both suggesting the absence of price-making ability. While the market-determined product price for a ppt equals marginal revenue regardless of quantity sold (because the firm can sell as much as it chooses at that price), the market-determined wage for a rpt equals marginal labor cost regardless of amount of labor hired (because the firm can hire as much labor as it chooses at that wage).

In addition, while the market-determined product price equals marginal...

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