Matakuliah
Tahun
: F0882 - Economic Analysis
: 2009
FACTOR MARKETS:LABOR, LAND AND
CAPITAL
Chapter 4
Learning Outcomes
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Income and Wealth
Labor Market Issues and Policies
Land and Rent
Capital and Interest
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Income, Role of Government and Wealth
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The earning s in a market economy are distributed to
the owners of the economy’s factors of production in the
form of wages, profits, rent and interest.
Personal income equals market income plus transfer
payment.
The major componet of government transfer is social
security payments to the elderly.
Wealth consist of the net dollar value of assets owned
at a given pint in time.
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The Share of Labor in National Income
Wages Have Improved as Hours of Work
Have Declined
Demand for Labor Reflects
Marginal Productivity
Earnings Benefit from
Education and Experience
Relative Income Gains Have Been Dramatic
for College Graduates
Land and Capital
• Rent (or pure economic rent) is the payment for the use
of factors of production that are fixed in supply
• Because the supply of land is inelastic, land will always
work for whatever it can earn. Thus the value of the land
derives entirely from the value of the product, and not
vice versa.
• A tax on pure economic rent will lead to no distortions or
inefficiencies.
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Fixed Land Must Work for
Whatever It Can Earn
Tax on Fixed Land Is Shifted Back to
Landowners, with Government Skimming Off
Pure Economic Rent
Capital and Interest
• Capital goods : durable produced goods used for further
production.
• Rentals: net annual dollar returns on capital goods
• Rate if return on capital : net annual receipts on capital divided
by dollar value or capital (measured as percent per year).
• Interest rate : yield on funds, measured as percent per year.
• Real interest rate: yield on funds corrected for inflation, also
measured as percent per year.
• Present Value : value today of a stream of future returns
generated by an asset.
• Profits: a residual income item equal to revenue minus costs
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