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Unformatted text preview: 11-11-07Imput markets, income distributor circular oFactorsLandLabor CapitalEntrepreneurship3 basic ?soWhat to produce ( S & D interaction)oHow to produce ( S & D- profit maxing)oFor whom (income distribution)First passoY= Wage * Labor supply + Rent * Land + Capital * InterestY= incomeLabor supply= Ls= most income comes fromLand= natural resource income (land, oil, trees, etc)Interest= stock, bond, income Income is large if you supply lots of valuable imputsoSuppose you have the skill, using microscope & delicate tools to engrave the national anthem on the head of a pinTakes a month/pinIf sells for $3.50/pin, you get $3.50/monthIncome does not equate to skill levelPoor country sell sweatshop stuffoWhat else would they be doing?oPoor countries have large labor surplus in agricultureoWages dont rise rapidly until excess labor in agriculture is absorbedoSweatshops educate workers in modern waysWe know you get a high income if you sell lots of valuable imputsoBrain surgeon who works hardoYour value to an employer is your MP*what the output is woth (MP or P)oThe employer will compare your value (MPL * Pq) w/ your costHire if wage less than or equal to MPL*PqWage is $10/hourProduces tubes of toothpaste* $1o$10/hour < $20Ultimately11-13-07Hire MB (MPL *Pgood) greater that or equal to MC (wage)oTrue for any imput, well focus on laborWhat about supply of imputs...
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- Fall '07