How factors of production-
How the demand for factors leads to the marginal productivity theory of income distribution
About the sources of wage disparities and the role of discrimination
How labor supply arises from a worker’s decision about time allocation
DOES HIGHER EDUCATION pay? Yes, it does: in the modern economy, employers are willing to pay a premium for workers with more education. And the size of that premium has increased a lot over the last few decades. In 2013, Americans with four-
Who decided that the wages of workers with a four-
Still, there is a qualitative difference between the wage rate of high school grads and the price of used textbooks: the wage rate isn’t the price of a good, it’s the price of a factor of production. And although markets for factors of production are in many ways similar to those for goods, there are also some important differences.
In this section, we examine factor markets, the markets in which the factors of production such as labor, land, and capital are traded. Factor markets, like markets for goods and services, play a crucial role in the economy: they allocate productive resources to producers and help ensure that those resources are used efficiently.
This section begins by describing the major factors of production and the demand for factors of production, which leads to a crucial insight: the marginal productivity theory of income distribution. We then consider some challenges to the marginal productivity theory and examine the markets for capital and for land. The chapter concludes with a discussion of the supply of the most important factor, labor.