Factor Markets Terms

Def of Labor

Human effort

Def of Land

All God-given gifts of nature

Def of capital

Any manufactured aid to production

Where does (resource) demand come from?

Firms

Where does (resource) supply come from?

Households

Def of income

The flow of wages, interest payments, dividends, and other things of value (money) during a period of time (1 year)

National income

Aggregate of all incomes

Wealth

Dollar value of assets owned at a given point in time, stock of things of value at a certain point in time.

Assets

Items of value owned

Liabilities

Financial obligations owed to others

Where is factor demand derived from?

The demand for factors of production comes from the demand for the output they can produce.

Production function

Gives the relationship between inputs and output for a given industry.

Total Product

The maximum amount of output that can be produced with a given set of inputs as a function of one of the inputs.

Marginal product (Marginal Physical product)

The extra or additional output produced when one more unit of an input is employed (other inputs held constant).

Marginal Revenue Product

The extra or additional revenue a firm receives from employing one more unit of an input

Marginal Resource Cost

The extra or additional cost incurred from hiring one more unit of input.

Rule of Demand

To maximize profits, a firm should keep hiring inputs until the MRP of the last unit hired equals its MRC.

Least Cost Rule

To produce any given level of output at least cost, a firm should hire inputs until the marginal product of the last dollar spent on each input is equal.

What does the “Marginal Productivity Theory of Income Distribution” say?

Fairness and economic justice are the result of a competitive capitalist economy.

On What ethical proposition is the “Marginal Productivity Theory of Income Distribution” based?

“To each according to what he creates”

Definition of Supply

The relationship between the price of an input and the quantity that households willingly supply.

Rule of Supply