ECON 1110 Lecture Notes - Lecture 3: Real Wages, Demand Curve, Autarky
Document Summary
National income: demand side closed economy doesn"t include natural resources, net exports. Y = f(k,l) shows output given k units capital & l units labor reflects economy"s level of technology. 1: economy"s supply of capital & labor are fixed meaning y is fixed. Distribution determined by factor prices: prices per unit of factors capital: rental rate labor: wages. W/p: real wage (measured in units of output) R/p: real rental rate factor prices determined by s & d in mkts assumption: mkts are competitive firms take w,p,r as given keeps hiring until mp > cost. Mpl: extra output firm can produce given additional unit of labor. Diminishing marginal returns hire when mpl>w/p stop hiring when mpl=w/p increasing labor decreasing rate of output (e. g. mpl/mpk) Mpk curve is firm"s demand curve for renting capital. Neoclassical theory of distribution labor income shares dominate mkt.
