101_F07_HO_3

101_F07_HO_3 - ECN 101 Shaofeng Xu Fall 07 Handout 3:...

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ECN 101 Fall 07 Shaofeng Xu Handout 3: Income Distribution and Savings Oct 14, 2007 1. Income Distribution The theory of income distribution, simply speaking, centers on the determi- nation of the input quantity in production. In other words, given prices of labor and capital, the &rm has to make a decision on how many workers it will em- ploy and how much capital it will rent based on the principle of MAXIMIZING PROFIT. After then, workers and capitalists get paid which naturally leads to a distribution of income in the economy. Max P F ( K;L ) ± W L ± R K to take derivatives with respect to K and L respectively. We then have the following conditions: P MPL ± W = 0 ) MPL = W P (1) P MPK ± R = 0 ) MPK = R P (2) (1) implies that when considering the amount of labor to be employed, the
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This note was uploaded on 04/18/2008 for the course ECON 101 taught by Professor Miyanishi during the Fall '08 term at UC Davis.

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101_F07_HO_3 - ECN 101 Shaofeng Xu Fall 07 Handout 3:...

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