Free Goods Goods produced without cost

4 Factors of Production
1.Land Original Gift of nature; Soil, river, lakes, oceans, mountains, forest, mineral sources, climate
2.Labor Exertion of physical and mental efforts of individual
3.Capital Finished products used to produce other goods
4.Entreprenuer organizer and coordinator of land, labor and capital
Production Creation of goods and services to satisfy human wants
Inputs Production Factors of production
Outputs of Production Goods and services created by inputs
2 Factors of Production
Fixed Factor Fixed input
Variable Factor Variable input
Law of Diminishing Returns known as Law of Marginal Productivity; Successive units of variable input
Message of the law Proper combination of variable input and fixed input
Marginal Product additional product brought about by one additional unit
4 Economic Costs
1.Total Cost Sum total of production; wages, rents interest and normal profits
2.Fixed Cost remains constant regardless of the volume of production
3.Variable Cost changes proportion to volume of production
4.Average Cost called unit cost; equivalent to total cost divided by quantity
Marginal Cost additional or extra cost brought about by producing one additional unit
Explicit Cost called expenditure cost; payments to the owners of factors of production
Implicit Cost Non expenditure cost
Opportunity Cost foregone opportunity or alternative benefit
Short run short period of time allow to an enterprise to change its plant capacity
Long run long enough period of time to permit a firm or enterprise to after all its input resources
2 Economies of Scale
1. External Economies of Scale factors are outside the firm or enterprise which contribute to the efficiency of latter
2.Internal Economies of Scale factors are inside the firm or enterprise which contribute to the efficiency of latter
Revenue ( Cost of Production) total payments by a firm to the owners of factors of production
Marginal Revenue additional income of a firm brought about by selling one additional unit of product
2 basic Market Models
a. Perfect / pure competition
1. Perfect/pure type
b. Pure monopoly competition
a. monopolistic competition
2.Imperfect/non-pure type
b. oligopoly
4 Market Models / Characteristics
Large number of independent sellers ; products identical, no single seller/buyer, easy for new
1.Pure Competition
firms enter the market, non-price competition

only one seller/producer supplying unique goods and services; unique products, monopolist
2.Pure Monopoly
make the price, extremely difficult for new firms to enter, no extensive advertising

large no. or small producers or supplier selling similar but not identical product ; large no. of
3.Monopolistic Competition sellers acting independently, products are differentiated, limited control of price, entry of new
firms relatively easy, aggressive non price competition

Few firms offering standardized or differed goods and services ; Few firms dominate, identical
4.Oligopoly
products, there is price agreement, entry of new firms is difficult, strong advertising

1.Government laws and policies

2.Technology
3.Business policies and 4 Determinants of Market structure
practices
4.Economic freedom
Graphical analysis price and output determination under pure monopoly is shown in graphical illustration
Monopolistic competition demand curve of a firm under this market structure is highly elastic
Collusion common practice among oligopolist
3 Determinants of Factor Demand
1.Direct Demand demand for goods/services
2.Derived Demand production of goods and services
3.Productivity productive reason have the highest demand
3 Labor for demand
 1.Marginal Product (of labor)
2.Marginal Revenue (of labor)
3.Marginal resource cost
Income distribution
French Philosopher Rousseau
Babeuf
Proudhon
Karl Marx
1.Personal Distribution
2.Functional Distribution
1.Intelligence and Talents
2.Education and Training
3.Unpleasant and risky jobs
4.Ownership and productive
factors
5.Luck and connections
1.Marginal Productivity
2.Needs
3.Social Usefulness
4.Equality
Pricing Resources
Wage
Determinants of wage rate
1.Minimum wage
2.Labor Unions
Economic Rent
Loan rent
David Ricardo and Henry George
Adam Smith
Henry George
Interest rate
Loan sharks / Usurers
Economic or pure profit
additional output produced by employment of an additional man-hour labor
additional revenue obtained by selling marginal product of labor
payment of man-hour labor and other productive resources
allocation of income among the owners
private property was robbery and it did not exist in the state of nature
nature is given ti every man an equal right in the enjoyment of all goods
believer in equality and bitter- enemy of private property
Father of modern socialism; capitalist is the recipient of surplus value
2 Types of income Distribution
allocation of income among persons of household
allocation of income among factors of production
5 Causes of income Inequality
individuals who have intelligence and talents are more likely to earn more income
higher levels of education and training generally higher income
highly develop countries, employers provide financial incentives to work that are dirty
few families own most productive factors like land, machines buildings etc.
more experienced old folks claim that it is luck that counts much
4 Theories of income distribution
Income of factors of production is equal to the value of its marginal product
determine the amount of income of families/individuals; more needs more income
basis of income distribution; Jobs useful to the society are paid higher
income distribution in which all members of society receive an equal amount of income
payment of factors of production
most important price of productive resources
supply and demand -wage rate determined by the free interaction between supply/demand for
labor
2 Determinants of wage rate
Government imposes minimum wage rate for various workers
active labor unions likely to protect and promote the legitimate interests of their members
payment for use of land/ natural resources which are completely fixed in total supply
unearned income
rent was unearned income
Rest was monopoly price
increase in rent value of land should be taken by the government in form of tax
payment for using the money of other individuals
extremely high interest rates
earnings of a firm after deducting the cost of production