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Unit 7. The Markets for the Factors of Production
IES Lluís de Requesens (Molins de Rei) Batxillerat Social Economics (CLIL) – Innovació en Llengües Estrangeres Jordi Franch Parella
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Labour - The demand for a factor of production is a derived demand (labour is not a final good ready to be enjoyed by consumers, but the input of the production of other goods) - Value (Discounted) of the Marginal Product = Price (Discounted) x Marginal Product - To maximize profits, the competitive firms will hire workers until W = VdMgPLabour - The supply of labour arises from individuals' trade-off between work and leisure
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Labour
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Labour Minimum wages above the equilibrium mean unemployment
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Land and Capital - The supply of land is inelastic (short-run) but more elastic (long-run) - Capital refers to the equipment and structure used to produce final goods and services - The interest rate is the price of a present good in terms of a future good - In a society with no saving the interest rate will be very high, whereas in a society with a lot of saving the interest rate will be lower
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Human Capital Human Capital is the accumulation of investments in people (education and on-the-job-training) Education represents an expenditure of resources at one moment in time to raise productivity in the future By the year 2005, in Spain, a person with a college degree earned 60% more than without a degree The gap in earnings between skilled and unskilled workers has risen
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Capital
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