Economics-For Managers


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Economics For Managers, Management Textbook, Workbook

Microeconomics : Rent And Wages : Chapter 8

Factors of production are the goods and/or services used in production. The major factors of production are land, labor, capital and entrepreneurship. Remuneration for the usage of land is paid in the form of rent, for labor in the form of wages, for capital as interest, and for entrepreneurship profit is the reward. According to traditional analysis, determination of factor prices is different from the determination of product pricing. This is because the demand for a factor of production is derived demand and also has joint demand along with other factors of production. However, modern economists believe that the factors of production can also be priced based on the forces of demand and supply in a manner similar to determination of product prices. Various theories of factor pricing suggest the ways to distribute the income among the factors of production Micro theory of functional distribution of income is also termed as the theory of factor pricing. Prominent among the theories of factor pricing are the marginal productivity theory of factor pricing and the modern theory of factor pricing. Rent can be termed as the reward for land which is one of the four factors of production.

David Ricardo explained rent as differential surplus which indicates that rent is the surplus of revenue over costs which arises due to differences in the level of fertility or usability of land. According to the modern theory of factor pricing, the scarcity of land acted as the basis for the concept of rent.

Prominent among the theories of rent are the Ricardian theory and the modern theory of rent. Labor is one of the four factors of production. In economics, the term labor refers to both physical and mental work. Wage is the remuneration paid for labor. Payment of wages can be done in different modes such as time wages, piece wages, task wages, cash wages, kind wages and service wages.

There is a difference between the nominal and real wages paid to workers. Nominal wages refer to the amount of the wages as measured in terms of money while real wages refer to the purchasing power of the worker's remuneration i.e., the amount of necessaries, comforts and luxuries which the worker can command in return for his services.

Different economists have given different theories for the determination of wages. The prominent among the theories of wages are the standard of living theory of wages, the bargaining theory of wages and the modern theory of wages. Trade unions also influence the wage level of workers.

Chapter 8 : Overview

Theories Of Factor Pricing
Personal Distribution
Functional Distribution
Marginal Productivity Theory of Factor Pricing
Modern theory of Factor Pricing

Meaning Of Rent
Rent as a Differential Surplus
Scarcity Rent

Theories Of Rent
Ricardian Theory
Modern Theory of Rent

Relationship Between Rent And Price
Ricardian Analysis
Modern Analysis

Concept Of Wages
Distinction Between Real Wages And Nominal Wages
Real Wages
Nominal Wages

Factors Determining Real Wages
Theories Of Wages
Standard of Living Theory of Wages
Bargaining Theory of Wages
Modern Theory of Wages

Wages And Trade Unions
Productivity of Unionized Workers
Limited Supply of Workers