gs_-20_--_Incomes_of_factors_of_production_--first_part

gs_-20_--_Incomes_of_factors_of_production_--first_part -...

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1 Lecture #20: INCOMES OF THE FACTORS OF PRODUCTION ± THE INCOMES OF FACTORS – WAGE, INTEREST, RENT AND PROFIT ± THE CIRCULAR FLOW – GOODS & FACTORS ± MARGINAL PRODUCTIVITY THEORY AND FACTOR INCOMES ± LABOR INCOME -- WAGE GOODS MARKET FOOD CLOTHING Quantity 0 Demand Supply P O Price Q O Quantity 0 Demand Supply P O Price 2/10/2010 3 FACTOR MARKET: LABOR LABOR L O EMPLOYMENT 0 Demand Supply W O Wage Rate THE LABOR MARKET INCOME OF LABOR = WAGE RATE, SALARY
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2 2/10/2010 4 FACTOR MARKET:CAPITAL CAPITAL I O CAPITAL 0 Demand Supply i O Capital Income THE CAPITAL MARKET INCOME OF CAPITAL = INTEREST 2/10/2010 5 FACTOR MARKET:LAND LAND T O LAND 0 Demand Supply R O Rent THE LAND MARKET INCOME OF LAND = RENT 2/10/2010 6 FACTOR AND GOODS MARKETS CIRCULAR FLOW DIAGRAM OF THE ECONOMY
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3 2/10/2010 Econ 11 -- Lecture #20 7 PEOPLE OWNERS OF FACTORS OF PRODUCTION BUSINESS PRODUCERS OF GOODS AND SERVICES DEMAND SUPPLY DEMAND SUPPLY FOOD, CLOTHING FACTORS OF PRODUCTION MARGINAL PRODUCTIVITY THEORY EXPLAINS HOW FACTORS EARN THEIR INCOME. OUTPUT, FACTOR INCOMES, AND MARGINAL PRODUCTIVITY THEORY ± Suppose there are only two factors of production (Land and Labor). ± In this economy, all Land and Labor are fixed in quantities and are employed. ± Amount of Output Æ Depends on the Amount of Land and Amount of Labor factors used and on their Productivity.
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4 2/10/2010 Econ 11 -- Lecture #20 10 TOTAL PRODUCT LABOR EMPLOYED 0 TOTAL PRODUCT Profile of total output while varying labor input, with land held fixed L 0 TP 0 0 VIEW OF LABOR BEING VARIED 2/10/2010 Econ 11 -- Lecture #20 11 MARGINAL PRODUCT LABOR EMPLOYED 0 MARGINAL PRODUCT The MP of labor is MP 0 is the wage paid to Labor employed at L . L 0 MP 0 0 2/10/2010 Econ 11 -- Lecture #20 12 MARGINAL PRODUCT LABOR EMPLOYED 0 MARGINAL PRODUCT L 0 MP 0 0 By assumption, the Labor factor is fixed and fully employed.
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This note was uploaded on 04/18/2010 for the course SE 67256 taught by Professor Dr.gerardosicat during the Spring '10 term at University of the Philippines Diliman.

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gs_-20_--_Incomes_of_factors_of_production_--first_part -...

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