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In discussions of factor markets, labor is often used as an example. Land and capital markets have unique characteristics that are worthy of examination. We look at the markets for land and capital more closely in this module before moving on to discuss the labor market in Module 71.

In the previous module, we used a labor market example to explain why a firm's individual demand curve for a factor is its marginal revenue product curve. The equilibrium price and quantity of these factors are determined in land and capital markets.

Demand in the labor market is one of the factors that can be applied to other production factors. If the farmer decides to rent an additional acre of land, it will be for a year. The marginal revenue product of an acre of land will be compared to the cost of renting that acre. To maximize profit, the farmer will rent more land until the marginal revenue product of an acre of land is equal to the rental cost per acre.

In the context of Babette's Cajun Cafe, even if you own land or capital, there is an implicit cost of using it for a given activity because it could be used for something else. If the marginal revenue product of a unit is equal to the cost of the last unit employed, then a profit-maximizing firm employs additional units of land and capital.

Due to diminishing returns, the marginal revenue product curve and or implicit, of using a unit of the individual firm's demand curves for land and capital slope downward.

The supply curve is in panel a. The supply curve for land is relatively inelastic as we have drawn it.

The factor market graph is supplied through irrigation.

The supply curve for capital is in panel b. The supply curve for capital is relatively flat and therefore you should be able to draw, label, and analyze elastic for the AP(r) exam. Capital is changes just as you do for other supply and demand graphs.

Panel shows equilibrium in the market for land and capital as well as the equilibrium quantities transacted.

The curve for land is steep. Each unit of land will cost more to increase the quantity of productive land.

As in the case of supply curves for goods and services, the curve for a factor of production will shift as the factor becomes less and less available. As a result of a government policy to promote investment, the supply of capital could increase or the supply of farmland could decrease. The marginal product will change when the supply of land or capital changes. Firms would pay more for the last truck used if the number of delivery trucks decreased.

The markets remember that all inputs are paid in the market for land.

512 acres of flat in excess of the minimum land in Ouray, Colorado is ringed by mountains too steep to build or farm on.

The distribution of the economic rent from land is a topic of debate. Socialists believe that land should be publicly owned so that it can be shared. Critics argue that markets give incentives for resources to be allocated to their most productive uses, whereas publicly owned land might not be allocated with the same attention to opportunity costs.

When land is in fixed supply, a land tax can be used to redistributed portions of the economic rent. Many types of taxes cause deadweight loss by reducing the equilibrium quantity. There is no deadweight loss when the quantity of land is fixed because a tax on land does not decrease the amount of land that is bought and sold.

When a factor of production such as land is appealing from an efficiency standpoint, the entire payment for that factor is economic rent.

Economic rent is paid to workers.

You get $4 of economic rent per hour. If you don't have an alterna surplus, and you love your job so much that you would work for free, your income is pure rent.

We know how equilibrium rental rates and quantities are determined.

We look at marginal productivity more closely.

The equilibrium marginal revenue product is the value of the additional factor of production and the revenue generated by the last unit of that factor in the market.

In the economy-wide factor market, the price paid for each factor is equal to the contribution to revenue made by the last unit of that factor hired, according to this theory. If a unit of labor is paid more than a unit of capital, it is because the marginal revenue product of labor is more than the marginal revenue product of capital.

We have treated factor markets as if they were the same.

All labor, capital and land were the same.

Factors differ with respect to productivity. Land resources and workers have different skills and abilities. We can think of different markets for different types of land, capital, and labor instead of thinking of one land market. The market for computer programmers is different from the market for pastry chefs.

The marginal productivity theory of income distribution still holds despite the fact that there are separate factor markets for different factors. When the labor market for computer programmers is in equilibrium, the wage rate earned by all computer programmers is the same as the marginal revenue product of the last computer programmers hired in that market. The marginal productivity theory can explain the distribution of income among different types of land, labor, and capital. The marginal productivity theory of income distribution explains differences in workers' wages and we look more closely at the distribution of income between different types of labor.

Their highly skilled senior will be less well paid than their counterparts in other industries.

The $70,000 salary was added to by the Hamill's machinists because they were skilled in employee benefits.

There is a $67,000 difference between job security and good benefits at Hamill, so why doesn't it raise its wages? They have a problem with the work.

The number of benefits per trainee increased because of the $125,000 plus the $137,000 figure.

They would like to hire more in 2011.

Each acre of farmland can be improved with new fertilizers.

The test has multiple-choice questions.

The quantity of land is related to the price capital.

It is difficult to find new supplies of land.

I only goes up.

I, II, and III are productive.

There are free-response questions for tackle the test.

Land is in fixed supply.

Determine the equilibrium wage about time preference gives rise and level of employment in the to labor supply labor market Adding the supply of labor and exploring the determination of equilibrium wage and quantity in the labor market completes the development of the labor market model.

There are only 24 hours in a day, so to supply labor is to give up leisure, which presents a dilemma of sorts. The labor market looks different from the markets for goods and services.

Firms and households are different in the labor market from markets for goods and services. A good such as wheat is supplied by firms and demanded by households, while labor is demanded by firms and supplied by households.

Some people have little choice but to take a job for a set number of hours per week, as most people have limited control over their work hours.

There is a lot of flexibility to choose among different careers and employment situations. Some part-time and full-time jobs are only open from 9:00 a.m. to 5:00 p.m. Some people work two jobs while others don't. There are many work-hour options for selfemployed people. To simplify our study of labor supply, we will imagine an individual who can choose to work as many or as few hours as he or she likes.

Human beings make decisions about labor supply and have other uses for their time. An hour spent on the job is an hour not spent on other activities. There are hours to spend on different things.

People who work earn money that they can use to buy goods.

Leisure and purchased goods yield utility. Most people would like to consume more of leisure as their incomes increase, so we can think of it as a normal good.

By making a marginal comparison.

Clive likes leisure and goods that money can buy. His wage rate is $10 per hour. He must compare the marginal utility of an additional hour of leisure with the additional utility he gets from $10 worth of goods in order to decide how many hours he wants to work. He can increase his total utility by giving up an hour of leisure in order to work an additional hour if he has $10 worth of goods. If an extra hour of leisure adds more to his total utility than $10 worth of goods, he can work fewer hours in order to gain an hour of leisure.

The marginal utility that Clive gets from one hour of leisure is the same as the marginal utility he gets from the goods he can purchase.

When his wage rate changes, we want to know how Clive's decision about time allocation is affected.

Clive will work longer hours because his incentive to work has increased, and he can now make more money by giving up an hour of leisure. You could argue that he will work less because he doesn't need to work as many hours to make enough money to purchase the goods he wants.

When Clive's wage rate increases, the quantity of labor can either rise or fall. The substitution effect and income effect are two ways in which a price change affects consumer choice.

Think about how a wage increase affects Clive's demand for leisure. The amount of money he gives up by taking an hour off instead of working is called the opportunity cost of leisure. The substitution effect gives him an incentive to work longer hours.

The individual labor substitution effect slopes upward when the income effect of a wage increase dominates the income effect. In panel a rise slopes downward. The number of hours worked can be reduced from 40 to 50 if the wage rate increases from $10 to $20 per hour.

When the wage rate increases, the quantity of labor supplied goes down.

The substitution effect dominates the income effect at lower wage rates. The substitution effect is dominated by the income effect at higher wage rates.

Many labor econo mists believe that income effects on the supply of labor may be stronger than substitution effects at high wage rates. Americans have increased their consumption of leisure over the past century.

At the end of the 19th century, wages adjusted for inflation were less than they are today, and the typical work week was 70 hours. Most people retire at age 65 or earlier because the typical work week is less than 40 hours. Americans have chosen to consume more leisure in order to take advantage of higher wages.

We can turn to the market labor supply curve now that we know how income and substitution effects shape the individual labor supply curve.

You may be asked to identify the changes in workers' willingness to supply labor that causes a shift of the labor supply graph. There are a variety of factors that can lead to such shifts, including changes in preferences labor supply curve for the AP(r) and social norms, changes in population, changes in opportunities, and changes exam.

Workers can increase or decrease their willingness to work at any given wage, as a result of changes in preferences and social norms. The United States has seen a large increase in the number of employed women since the 1960s. Women who could not afford to work outside the home used to avoid it. The invention of labor-saving home appliances such as washing machines, the trend for more people to live in cities, and higher female education levels have caused large numbers of American women to join the workforce.

Changes in the population size can lead to shifts in the labor supply curve. A larger population tends to shift the labor supply curve right as more workers are available at any given wage, while a smaller population tends to shift the curve left due to fewer available workers. The labor supply curve in the United States is moving to the right.

At one time, teaching was the only occupation that was suitable for well-educated women. Many women left teaching to pursue other careers as opportunities for women in other professions opened up in the 1960s.

The leftward shift of the supply curve for teachers was caused by a fall in the willingness to work at any given wage and forcing school districts to pay more to maintain an adequate teaching staff. When superior alternatives arise for workers in another labor market, the supply curve in the original labor market shifts left as workers move to the new opportunities.

Workers move to other markets.

A person with more money will buy more things.

The income effect from the stock market boom will shift the labor supply curve associated with those workers who are leftward.

The market labor supply curve associated with employable children was shifted in the late 1990s due to a change in the wealth levels of many families.

The equilibrium wage and level of employment in the labor market can be determined using the supply and demand curves for labor.

By taking a summer job, the number of people who contribute to household finances along the New Jersey shore had fallen to 32%. A serious short that young men in particular have labor supply is caused by income effect. Increased lifeguard positions, together with summer jobs, are more likely to be taken to the substitution effect.

Teenagers and college students are now doing the jobs that used to be done by high school students in the summer labor supply. A growing number of young people devote their summers to additional income due to the fact that more students feel they should deliver pizzas.

Americans have decided not to study. Take summer jobs is an important factor in forgo summer work. The decline is increasing household leisure.

The marginal revenue product of labor curve is the same as the firm's labor demand curve. The labor supply curve is upward sloping.

The equilibrium wage rate is the rate at which the quantity of labor is equal to the demand. The market wage rate is also known as the equilibrium wage rate.

We have assumed that the labor market is competitive, but it isn't always the case. We will look at the workings of an imperfectly competitive labor market.

There are important differences between an imperfectly competitive market and a perfectly competitive market.

The hiring decision does not affect the market.

The marginal factor cost is above the market wage in a labor market characterized by imperfect competition. A firm in an imperfectly competitive labor market is large enough to have an effect on the market wage.

Maybe you've seen a small buyer. An example of a monopsony is a town where one firm hires most of the labor in the market.

The higher wages go to everyone.

A perfectly competitive labor market has an individual it wants at the market wage. The labor firm faces a labor supply curve that is horizontal at the supply curve for a firm in a perfectly competitive labor market equilibrium wage because the firm is so small that it can't hire all the labor it needs.

The reason why the monopolist's marginal revenue curve is below the demand curve is similar to the reason why the monopolist's marginal revenue curve is above the demand curve. To sell one more, the monopolist has to lower the price, so the additional revenue is the price minus the losses on the units that would otherwise sell at the higher price. The marginal factor cost is the wage plus the wage increase for those workers who could otherwise be hired at the lower wage.

Firms hire labor until the marginal revenue product of labor equals the market wage in a perfectly competitive labor market. A firm will hire more workers if the marginal revenue product of labor is less than the marginal factor cost of labor.

Market labor workers in an imperfectly competitive supply curve labor market need to be paid more. The cost of hiring another worker is higher than the wage rate.

The marginal factor cost curve is above the labor supply curve in an imperfectly competitive labor market because the firm must offer a higher wage to hire more workers.

The wage in the imperfectly competitive labor market is less than the marginal factor cost of labor.

Firms determine the optimal amount of land, labor, or capital to hire in factor markets with the help of Modules 69-71. There are different combinations of factors that a firm can use to produce the same level of output. In the next module, we will look at how a firm chooses between alternative input combinations for producing a level of output.

A new law limits the number of hours Clive can work per week if his wage rate falls.

The test has multiple-choice questions.

The income effect is large.

The substitution effect is small.

The substitution effect is dominated by the income effect.

The income effect is dominated by the substitution effect.

The substitution effect is equal to the income effect.

There are free-response questions for tackle the test.

In a perfectly competitive labor market, the firm hires labor.

In the labor market, the firm is a price-taker.

In a perfectly competitive product market, the firm sells its good.

The $5 firm can sell all the output it wants at the market price of $5, according to the horizontal demand curve.

If the last worker is hired, there will be an additional for the delivery driver market.