Block 5: Distribution of Income - Factor Markets, Wages, Interest, Rent, and Profit

Factor Market

A market where factors of production—including land, labour, and capital—are bought and sold, allocating resources and distributing income to owners of productive resources in the form of wages, rent, interest, and profit.

Production Function

A technical specification of the relationship between inputs used and the maximum attainable output in a production process for a given state of technology, mathematically expressed as $Q = f(X_1, X_2, \thinspace \text{...}\thinspace, X_K)$.

Marginal Physical Product (MPP)

The additional physical output produced when one additional unit of a variable factor of production is added, while keeping the quantities of all other factors constant.

Value of Marginal Product (VMP)

The monetary value of the additional output produced by an additional unit of a factor, calculated by multiplying the output