Microeconomics Chapter 19 Factor Markets and Distribution of Income

how total income of economy is divided between labor, land and capital

value of additional output generated by employing one more unit of that factor

shows how value of marginal product on that factor depends on quantity of factor employed

by employing one more unit of a factor of production as long as value of marginal product produced by that unit exceeds its factor price; set value of MP of Labor= P or Labor

1. change in price of output
2. change in supply of other factors
3. change in technology

horizontal sum of all individual labor demand curves of all producers who hire labor

additional value produced by last unit of that factor employed in factor market as a whole

equilibrium value of marginal product of labour

explicit or implicit costs of using a unit of land or capital for a set period of time

capital is paid for w/funds that come from savings of investors and amount of savings that investor makes available is relatively responsive to rental rate for capital

says each factor is paid value of the output generated by the last unit of that factor employed in the factor market as a whole---its equilibrium value of marginal product. Division of income among economy factors of production isn't arbitrary --- its determined by each factors marginal productivity at economy equilibrium

1. compensating differentials: wage differences across jobs that reflect fact that some jobs are less pleasant than others
2. differences in talent
3. human capital: different people have different levels of education, experiences, leads to differing levels of 'human capital'

organizations that try to increase wages and improve working conditions for their members

incentive schemes used by employers to motivate workers and reduce turnover rate

some employers pay above-equilibrium wage as incentive for better preformance

how many hours to spend on different things more someone works ---> more income to be spent on leisure activities---> time to be spent leisurely taken by extra time working to make more $

marginal utility of one hour leisure is equal to marginal utility gained from goods that hourly wage can purchase

relationship between wage rate and # hours labor supplied by individual worker; believed that income effects on supply of labor somewhat stronger than substitution effect

1. change in preferences
2. change in population
3. change in opportunities
4. change in wealth

if prices go UP, lose consumers, demand elastic
if prices go DOWN, demand inelastic, won't generate a lot of additional TR
gives incentives to have fixed price