Chapter 18 is about the markets for the factors of
production. Factors of production are the inputs used to produce goods and
services. Inputs include labor, land, and capital. Starting off with labor, the
wage of labor is determined by the supply and demand for it. So a firm will
hire labor until marginal product equals the wage. The firm will also produce
until price equals marginal cost. The value of marginal product curve is the
labor demand curve. For supply of labor, readers should assume that the labor
supply is upward sloping. This curve may shift due to change in tastes, change
in alternative opportunities, and immigration. In competitive labor markets,
the wage adjusts to balance the supply and demand for labor. The wage also
equals the value of the marginal product of labor. Now the other factors of production
are land and capital. Capital is the stock of equipment and structures used to
produce goods and services. This chapter basically explained neoclassical
theory of distribution which is about how labor, land, and capital are
compensated for the roles they play in the production process.
I would give this chapter a difficulty rating of 2 out of 3.
Though this chapter ties in a lot of concepts that we learned in the previous
chapters, I have a hard time analyzing the charts and graphs so that’s something
that would be helpful if reviewed in class. However, the given examples, such
as the apple orchard, were helpful.
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