Reading notes--Principles of Economics (chapter18)

Summary

Chapter 18 is The Markets for the Factors of Production. This chapter introduces the market for labour, land and capital.

The versatility of supply and demand

• The market for labour
• The price of labours is the wage rate.
• The market price and quantity of labours are determined by the demand and supply of labours.

• The market for land

• The market for capital

The market for land and the market for capital are the same as the market for labour

Production function

• Production function is the relationship between the quantity of inputs used to make a good and the quantity of output of that good.

The value of the marginal product of labour

• Value of the marginal product is the marginal product of an input times the price of the output
• It decreases as the quantity of labour increases (because of the diminishing marginal product)
• Diminishing marginal product is the property whereby the marginal product of an input declines as the quantity of the input increases
• The market wage is equal to the value of marginal product

Definitions

1.Factors of production– the inputs used to produce goods and services

2.Production function– the relationship between the quantity of inputs used to make a good and the quantity of output of that good

3.Marginal product of labour– the increase in the amount of output from an additional unit of labor

4.Diminishing marginal product– the property whereby the marginal product of an input declines as the quantity of the input increases

5.Value of the marginal product– the marginal product of an input times the price of the output

6.Capital– the equipment and structures used to produce goods and services

Review

There are some exercises in this book. I recorded questions I didn’t answer correctly here.

1. Approximately what percentage of U.S. national income is paid to workers rather than to owners of capital and land? (Correct answer: C)

a. 25 percent

b. 45 percent

c. 65 percent

d. 85 percent

My wrong answer: B

2. Around 1973. the U.S. economy experienced a significant_____ in productivity growth, coupled with a_____ in the growth of real wages. (Correct answer: D)

a. pickup; pickup

b. pickup; slowdown

c. slowdown; pickup

d. slowdown; slowdown

My wrong answer: D