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Chap6 factor markets & income distribution

mmvidanes29
mmvidanes29

This chapter 6 was taken from the book ECONOMICS, 3rd edition by Feliciano Fajardo. This is for classroom instruction purposes.. Thank you

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PRINCIPLES OF ECONOMICS mmvidanes29@gmail.com
In a market economy, there are not only markets for goods and services but also for productive resources or factors of production: land, labor, capital and entrepreneur. The suppliers of goods and services in the product markets are the business firms and the buyers are the households.
Factor markets where households are the suppliers of the productive resources to the business firms. The incomes of households depend on the prices of their productive resources. Such incomes determine the ability to buy the goods and services offered by business firms.
1. Direct Demand. The demand for goods and services. Example : an individual buys a kilo of rice for consumption. Another one buys iPod for his pleasure. 2. Derived Demand. Demand for productive resources. Example: A firm buys a machine not for satisfaction nor for pleasure but for the production of goods and services.
Like the quantity demanded for goods in relation to prices, the quantity demanded for labor has an inverse relationship with wage rates. Business firms are willing and able to hire more workers at lower wage rates and vice versa. In the language of economics, a firms decision to employ an additional man-hour depends on the difference between marginal revenue product of said man-hour, and the marginal resource cost of employing it.
Marginal Product of labor is the additional output produced by the employment of an additional man- hour of labor. Marginal Revenue Product of labor (MRP), is defined as the additional revenue (income) obtained by selling the marginal product of labor. Marginal Revenue Cost (MRC) is the payment of the additional man-hour of labor and other productive resources like land and capital.
Rules for employing more man-hours of labor are: MRP > MRC, employ more man-hours of labor MRP < MRC, reduce man-hours of labor MRP = MRC, maintain man-hours of labor
In the factor market, the suppliers are the households, they are the sellers of the productive resources land, labor, capital and entrepreneur. More individuals are willing to work when wage rates are higher. Generally, this is true in an economy or society where there are abundant job opportunities. People can choose their jobs and their wages. However, in poor economies, jobs are scarce. Poor individuals are forced to accept unsuitable jobs with very low wage rates to be able to survive.
Is the allocation of income among the owners of the factors of production. 1. Personal Distribution. Is the allocation of income among persons or households. 2. Functional Distribution. Is the allocation of income among the factors of production.
1. Intelligence and Talents. Individuals who are more intelligent and talented are more likely to earn more income. 2. Education and Training. Those with higher levels of education and training generally gets the higher incomes.
3. Unpleasant and Risky Jobs. In highly developed countries, employers provide financial incentives to work that is dirty, unpleasant, difficult and risky. 4. Ownership of productive factors. Only few families own most of the productive factors like land, machines, buildings and so forth... 5. Luck and connections. The more the experienced old folks claim that it is luck that counts much.
1. Marginal productivity. This simply means that the owners of the factors of production are paid based on their contribution to production under a competitive market condition. 2. Needs. Determine the amount of income of families or individuals. Those who have more needs receive more income in proportion to their needs.
3. Social Usefulness. Is the basis of income distribution. Jobs which are more useful to society are paid higher. 4. Equality. Refers to an income distribution in which all members of society receive an equal amount of income.
Pricing of resources refers to payments of the factors of production where factor prices of factor payments are determined by the law of supply and demand. Wage is the most important price of the productive resources. To most people, wage or salary is the only source of income.
1. Supply and Demand. Wage rates, like goods and services are determined by the free interaction between supply and demand for labor. 2. Minimum Wage. The government imposes minimum wage rates for various workers like those in the industrial and agricultural sectors. 3. Labor Unions. More active labor unions are likely to protect and promote the legitimate interests of their members against the exploitations of their employers.
Interest rate is the payment for using the money of other individuals. The imposition of unreasonably high interest rate on loans has been condemned by society, then and now. This practice is called usury. Those who charge extremely high interest rates are known as loan sharks or usurers. Profits are rewards for the entrepreneur for taking the risks or making innovations.

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Chap6 factor markets &amp; income distribution

  • 2. In a market economy, there are not only markets for goods and services but also for productive resources or factors of production: land, labor, capital and entrepreneur. The suppliers of goods and services in the product markets are the business firms and the buyers are the households.
  • 3. Factor markets where households are the suppliers of the productive resources to the business firms. The incomes of households depend on the prices of their productive resources. Such incomes determine the ability to buy the goods and services offered by business firms.
  • 4. 1. Direct Demand. The demand for goods and services. Example : an individual buys a kilo of rice for consumption. Another one buys iPod for his pleasure. 2. Derived Demand. Demand for productive resources. Example: A firm buys a machine not for satisfaction nor for pleasure but for the production of goods and services.
  • 5. Like the quantity demanded for goods in relation to prices, the quantity demanded for labor has an inverse relationship with wage rates. Business firms are willing and able to hire more workers at lower wage rates and vice versa. In the language of economics, a firms decision to employ an additional man-hour depends on the difference between marginal revenue product of said man-hour, and the marginal resource cost of employing it.
  • 6. Marginal Product of labor is the additional output produced by the employment of an additional man- hour of labor. Marginal Revenue Product of labor (MRP), is defined as the additional revenue (income) obtained by selling the marginal product of labor. Marginal Revenue Cost (MRC) is the payment of the additional man-hour of labor and other productive resources like land and capital.
  • 7. Rules for employing more man-hours of labor are: MRP > MRC, employ more man-hours of labor MRP < MRC, reduce man-hours of labor MRP = MRC, maintain man-hours of labor
  • 8. In the factor market, the suppliers are the households, they are the sellers of the productive resources land, labor, capital and entrepreneur. More individuals are willing to work when wage rates are higher. Generally, this is true in an economy or society where there are abundant job opportunities. People can choose their jobs and their wages. However, in poor economies, jobs are scarce. Poor individuals are forced to accept unsuitable jobs with very low wage rates to be able to survive.
  • 9. Is the allocation of income among the owners of the factors of production. 1. Personal Distribution. Is the allocation of income among persons or households. 2. Functional Distribution. Is the allocation of income among the factors of production.
  • 10. 1. Intelligence and Talents. Individuals who are more intelligent and talented are more likely to earn more income. 2. Education and Training. Those with higher levels of education and training generally gets the higher incomes.
  • 11. 3. Unpleasant and Risky Jobs. In highly developed countries, employers provide financial incentives to work that is dirty, unpleasant, difficult and risky. 4. Ownership of productive factors. Only few families own most of the productive factors like land, machines, buildings and so forth... 5. Luck and connections. The more the experienced old folks claim that it is luck that counts much.
  • 12. 1. Marginal productivity. This simply means that the owners of the factors of production are paid based on their contribution to production under a competitive market condition. 2. Needs. Determine the amount of income of families or individuals. Those who have more needs receive more income in proportion to their needs.
  • 13. 3. Social Usefulness. Is the basis of income distribution. Jobs which are more useful to society are paid higher. 4. Equality. Refers to an income distribution in which all members of society receive an equal amount of income.
  • 14. Pricing of resources refers to payments of the factors of production where factor prices of factor payments are determined by the law of supply and demand. Wage is the most important price of the productive resources. To most people, wage or salary is the only source of income.
  • 15. 1. Supply and Demand. Wage rates, like goods and services are determined by the free interaction between supply and demand for labor. 2. Minimum Wage. The government imposes minimum wage rates for various workers like those in the industrial and agricultural sectors. 3. Labor Unions. More active labor unions are likely to protect and promote the legitimate interests of their members against the exploitations of their employers.
  • 16. Interest rate is the payment for using the money of other individuals. The imposition of unreasonably high interest rate on loans has been condemned by society, then and now. This practice is called usury. Those who charge extremely high interest rates are known as loan sharks or usurers. Profits are rewards for the entrepreneur for taking the risks or making innovations.