CHAPTER 18THE MARKETS FOR THE FACTORS OF PRODUCTION411distinguish between two prices: the purchase price and the rental price. The pur-chase priceof land or capital is the price a person pays to own that factor of pro-duction indefinitely. The rental priceis the price a person pays to use that factor fora limited period of time. It is important to keep this distinction in mind because, aswe will see, these prices are determined by somewhat different economic forces.Having defined these terms, we can now apply the theory of factor demandwe developed for the labor market to the markets for land and capital. The wageis, after all, simply the rental price of labor. Therefore, much of what we havelearned about wage determination applies also to the rental prices of land and cap-ital. As Figure 18-7 illustrates, the rental price of land, shown in panel (a), and therental price of capital, shown in panel (b), are determined by supply and demand.
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