Page 389 - The Principle of Economics

THE MARKETS FOR THE FACTORS OF PRODUCTION
When you finish school, your income will be determined largely by what kind of job you take. If you become a computer programmer, you will earn more than if you become a gas station attendant. This fact is not surprising, but it is not obvious why it is true. No law requires that computer programmers be paid more than gas station attendants. No ethical principle says that programmers are more deserv- ing. What then determines which job will pay you the higher wage?
Your income, of course, is a small piece of a larger economic picture. In 1999 the total income of all U.S. residents was about $8 trillion. People earned this in- come in various ways. Workers earned about three-fourths of it in the form of wages and fringe benefits. The rest went to landowners and to the owners of capi- tal—the economy’s stock of equipment and structures—in the form of rent, profit, and interest. What determines how much goes to workers? To landowners? To the owners of capital? Why do some workers earn higher wages than others, some
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IN THIS CHAPTER YOU WILL . . .
Analyze the labor demand of competitive, profit- maximizing firms
Consider the household decisions that lie behind labor supply
Learn why equilibrium wages equal the value of the marginal product of labor
Consider how the other factors of production—land and capital—are compensated
Examine how a change in the supply of one factor alters the earnings of all the factors