1. Derived dem. For ec. Resources.

   1. Dem. for ec. rsources depends upon:

      1. The dem. for good produced with this resource

      2. The price of the good

      3. Productivity of the resource(productivity↑  demand↑)

      4. Prices of other resources(complementary and substitute)

   2. Results of the usage of one additional unit of a factor:

      1. additional product(MPf – marg. product of a factor)

      2. add. revenue((marg. revenue product of a factor)MRPf = MR * MPf)

      3. add. value((value of marg. product of a factor)VMPf = P_good * MPf)

   3. !!! In perf. competition P_good = MR, so MRPf = VMPf

   4. !!! Under imperfect compet. P > MR, so VMPf > MRPf

2. Equilibrium of the firm on the resource market.

   1. Sr equilibrium:

      1. In the SR a firm confronts the law of diminishing marg. productivity of a variable factor.

      2. MRC – marg. revenue cost – the cost of employing on more unit of a var. factor.

      3. MC – marg. cost – cost of producing of one more unit of a product.

      4. The dem. for resources will be realized by the firm until MRPf ≥ MRCf, and equilibrium  MRPf = MRCf

      5. If we assume a perf. compet. market structure . MRCf = Pf  a firm is a price-tajer  price of hiring a new worker will be equal to the av. market wage.

      6. MRCf = Pf – eq. rule for perfectly comp. markets.

      7. !!! (Neo)Classical schools used this theory to conclude that owners of resources are awarded according to the MP_roductivity of resources.

2. Lr equilibrium(all factors are variable):

   1. Two or more factors can be used; all the units of labor and cap. are identical

   2. Both factors are substitutes and compliments(used together)

   3. Substitution and output effects of a price change.

      1. Assume(L,K - factors):

         1. P_k↑ 

            1. Costs↑  Output↓  D_L↓ and Q_Dk↓ - output effect

            2. Labour relative costs↓, though D_L↑; D_K↓ P_L=const – substitution effect

         2. !!! Both effects are negative(P↑  Q↓)

         3. !!! Cross-effects work in the opposite direction(разные изменения от одного)

         4. !!! In some cases factors are complement  no substitution effect(only output(scale) effect)

-- cost min. rule -- Profit maximization rule(eq. in LR)

3. Wage determination under Perfect competition.

1. Transfer payments – shows at what levels of the wages workers are willing and able to be at the labor market.

2. MDU↑(marg. disutility of labour)  P↑ to compensate disutility

3. Economic rent – the difference between the current market wage rate and the transfer payments.

4. For absolutely unique worker  all the earnings are economic rent.

4. Wage determination under imperfect competition.

   1. Monopsony – monopoly of an employer on the market.

   2. To attract more workers  W↑ to all the workers.

   3. !!! As there is no competition between employers  W will be as low as possible.

Conclusion: Monopsony underemployes and underpays to workers.

The theory of distribution of income II. Capital(k) and Land.

1. Concepts of capital.

   1. Marx: K is the industrial (economic) relation between the worker/owner. This relation can be presented in different forms (equipment, labor force, goods produces, etc).

   2. Classical/Neoclassical: K is identified with manufacture goods used to produce final G/S.

   3. Modern Economists: recognize different forms of K. It can be:

Tangible	Intangible
Equipment, residential structures, non-residential structures, inventories of inputs/outputs….	Human K (investments in education, training, etc), R/D, goodwill of the firm….

K yields valuable productive services over time. It is used to produce final G/S.