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Principles of Economics- Mankiw (5th) 385

Principles of Economics- Mankiw (5th) 385 - ing What then...

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IN THIS CHAPTER YOU WILL . . . Examine how a change in the supply of one factor alters the earnings of all the factors Learn why equilibrium wages equal the value of the marginal product of labor Analyze the labor demand of competitive, profit- maximizing firms Consider the household decisions that lie behind labor supply Consider how the other factors of production—land and capital—are compensated When you finish school, your income will be determined largely by what kind of job you take. If you become a computer programmer, you will earn more than if you become a gas station attendant. This fact is not surprising, but it is not obvious why it is true. No law requires that computer programmers be paid more than gas station attendants. No ethical principle says that programmers are more deserv-
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Unformatted text preview: ing. What then determines which job will pay you the higher wage? Your income, of course, is a small piece of a larger economic picture. In 1999 the total income of all U.S. residents was about $8 trillion. People earned this in-come in various ways. Workers earned about three-fourths of it in the form of wages and fringe benefits. The rest went to landowners and to the owners of capi-tal —the economy’s stock of equipment and structures—in the form of rent, profit, and interest. What determines how much goes to workers? To landowners? To the owners of capital? Why do some workers earn higher wages than others, some T H E M A R K E T S F O R T H E F A C T O R S O F P R O D U C T I O N 397...
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