EC120 Chapter 18: Chapter 18 EC120.docx
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The distribution of wages is based on supply and demand. The supply and demand for labour, land, and capital determine the prices paid to workers, landowner, and capital owners. Factors of production-the inputs used to produce goods and services. Labour, land, and capital are the three most important factors of production. The demand for a factor of production is derived demand. That is, a firm"s demand for a factor of production is derived from its decision to supply a god in another market. Labour is the most important factor of production. Labour markets are governed by the forces of supply and demand. Labour markets are different from most other markets because labour demand is a derived demand. We assume that our firm is competitive both in the market for applies and in the market for apple pickers. The firm does not care about the number of workers it has or the number of applies it produces.