Lecture 22-Markets for Factors of Production

School

Department

Economics

Course Code

ECO101H1

Professor

Jack Carr

Lecture

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Thursday, January 7th, 2010.

Markets for Factors of Productions

Full-Time Earnings (Year 2007 Dollars)

Physicians (GPs): $140,832

Registered Nurses: $ 53,354

High School Teachers: $ 57,480

Actors: $ 41,694

Cooks: $ 24,353

1. What is economics explanation?

(Answer: Value of Marginal Product)

2. How good is economics explanation?

(Answer: Pretty Good)

Factors of Production

x Labour

x Capital (equipment, structures)

x Land

Insights

1. Demand for factor is a derived demand

2. Price of factor is determined by demand and supply

Example:

FIRM PRODUCES WIDGETS (Perfect Competition)

1. Labour is variable factor (principle of diminishing marginal product applies)

2. Price of widget: $5

3. Wage rate: $150 per day

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