2010北京大学光华管理学院本科生经济学课件11.ppt
经济学原理：第七讲经济学原理：第七讲蔡洪滨 2023/2/10北京大学光华管理学院Factor Markets:Labor,Land,and CapitalChapter 12:The factor markets and the determination of incomeChapter 13:The labor marketChapter 14:Land,Natural Resources,and the EnvironmentChapter 15:Capital,Interest,and Profits2023/2/10Ch12:Factor markets and income determinationA.Income and WealthB.Input pricing by marginal productivity2023/2/1012A:Income and WealthIncome:flow of money earned during a yearSources of income from markets:providing factors of production.Market income=labor income+property income =labor income+rent(from providing land)+profit and interest(from providing capital)Personal income=market income+transfer income(from government)National income:aggregate of personal income 2023/2/1012A:Income and WealthWealth(net worth):net value of assets ownedWealth is a stock concept,while income is a flow concept.Assets:things that have positive market value.Liabilities:the value of things that are owed.Wealth=Assets liabilities2023/2/1012B:Input pricing by marginal productivityIncome distribution is an important economic and social issue in China and many other countries:Income gap between the poorest and the richest.Income gap between different groups of people.Overall income inequality.Wealth distribution in general is far more unequal than income distribution.In the U.S.A.,1/3 of total wealth is owned by the top 1%richest household.China may be more unequalTo understand income distribution,we need to understand what determines factor prices.Factor prices are determined in equilibrium by demand and supply in the factor markets.2023/2/10Factor DemandFactor demand is“derived demand”,derived from the need to supply final outputs to consumers.Factor demand is interdependent because firms usually use several factors in the production of outputs.Given the interdependence,holding other factors fixed,we can define“marginal product”of a factor X(labor,land,or capital)as MP=Q/XMarginal revenue product of a factor X is the additional revenue that can be generated from an additional unit of X:MRP=MR*MPIf the output market is competitive,MRP=P*MP2023/2/10Factor Demand A profit-maximizing firm will use a factor to the point when its MRP equals its cost.Thus,a firms demand schedule for a factor is its MRP schedule.Because of the rule of diminishing marginal product,a firms factor demand curve(or its MRP curve)is downward sloping.Aggregating over all firms in the economy,we get the demand curve for a factor in the economy.2023/2/10Factor SupplyThe supply of a factor depends on how the owners of that factor decide how much to supply at each price level of the factor.In the output market,the supply curve is always upward sloping because higher output prices motivate profit-maximizing firms to produce more.In the factor market,the supply curve is not always upward sloping.But in usual cases,it is upward sloping.We will discuss the determinants of the supply curve of each of the three factors later.2023/2/10Factor Market Equilibrium PriceFactor prices are determined by the equilibrium of the factor market when the demand and supply curves meet.Higher demand(upward shifting of the demand curve)for a factor increases its price,thus increases the per unit income of the factors owners.Higher supply(clockwise shifting of the supply curve)for a factor decreases its price,thus decreases the per unit income of the factors owners.2023/2/10Distribution of National IncomeIn the aggregate economy,all three factors,labor,land,and capital,are used in the production.In the neoclassical model,the factor prices(wage,rent,and interest)are determined by the equilibrium points in the factor markets.In the national income,labor income=wage*total employment,land income=rent*total land used,capital income=interest*total capital used.2023/2/10Ch13:The Labor MarketA.Fundamentals of Wage DeterminationB.Labor Market Issues and Policies2023/2/10 13A:Fundamentals of Wage DeterminationLong term trend in the industrialized countries:real wage rising steadily and and hours worked per week declining.In China,over the last three decades,real wage has been rising rather rapidly,the trend of hours worked per week is unclear.Since total labor force is also increasing over time,this rise of wage rate must be mostly coming from the demand side.What causes the upward shift of the labor demand?Need to look at the determinants of MP of labor.2023/2/10 13A:Fundamentals of Wage DeterminationWhat causes the shift of labor demand?As a result of industrialization,more capital increases the marginal productivity of labor.Technological changes:in manufacturing,transportation,communication,etc.Labor quality improvement through education and training:increase in“human capital”2023/2/10 13A:Fundamentals of Wage DeterminationAggregate Labor supply =total labor force*labor-force participation*individual labor supply+net immigrationIndividual labor supply:allocating time endowment between work and leisure Work brings income(so you can consume things):income=hours*wage.Substitution effect:when wage rises,individuals tend to work more and reduce leisure time (relative price change).Income Effect:when higher wage increases income,people value leisure more,and thus want to work less.Labor supply is upward sloping first,and then“bends backwards”for wage rates higher than a certain point.2023/2/10 13A:Fundamentals of Wage DeterminationWage differentials across different individuals:Jobs are different:compensating differentials,e.g.,museum versus firefighting.People are different:educations and skills,education premium,human capital investments.Education premium has been increasing as the labor market becomes more market-driven and more competitive.Labor market segmentationMobility cost:regional and international.Job mobility cost:certain professions need large human capital investments.Institutional barriers:hukou,immigration law,discrimination,etc.2023/2/1013B:Labor Market Issues and PoliciesLabor market in reality is not perfectly competitive.It is affected by many institutional factors.Labor unions:through monopolize labor supply to increase the wages and work conditions of unionized workers.Collective bargaining:wage,benefit and work rulesBargaining power comes from the threat of strikes and legal environment.The effects of labor unions:Increase wage of unionized workersCreate classical unemployment(excess supply at the union wage rate).In contrast,Keynesian unemployment is due to insufficient demand.Tend to reduce the total employment and the wage of unionized sectors.2023/2/1013B:Labor Market Issues and PoliciesLabor regulations:minimum wage,“labor contract law”,Minimum wage:the effect is the same as that of labor unions.Labor contract law:inflexible rules increase labor costs,reduce employment,and has unclear effects on work conditions of workers.How to protect workers from unfair employees?Better legal rights for workers.2023/2/1013B:Labor Market Issues and PoliciesDiscrimination in labor market:different treatment based on personal characteristics(race,gender,originality,accents,etc)that are irrelevant to productivity.Discrimination leads to labor market segmentation,reducing the incentives of the discriminated groups to make human capital investment.Becker puzzle:why competition does not eliminate discrimination?Statistical discrimination:incomplete information makes employers judge workers productivities by their group average;individuals in initially disadvantaged groups have lower incentives to invest in human capital,thus confirming the“market perception”that they are inferior.Affirmative action law:“reverse discrimination”?2023/2/10Ch14:Land,Natural Resources,and the EnvironmentA.The Economics of Natural ResourcesB.Environmental Economics2023/2/1014A:Economics of Natural ResourcesAppropriable natural resources:costs and benefits accrue to owners.Land,minerals(oil,gold,etc),trees,.Property rights are clearly defined.Externalities are not strong.Inappropriable natural resources:costs and benefits do not accrue to owners.Water,air,forest,Property rights are often hard to define.Externalities are strong.With externalities,markets fail to allocate resources efficiently,producing too little for positive externalities and too many for negative externalities.2023/2/1014A:Economics of Natural ResourcesLand:supply if fixed,inelastic supply curve.This is true in the sense of the total land area of a certain region is fixed.In terms of land space available for economic activities,it is often adjustable over time,especially in a developing economy:land conversion,tall buildings.However,once available,it is not adjustable(at least in the short run).Rent:payment for the use of factor with fixed supply.In the equilibrium of land market,the value of land depends on the demand for land.2023/2/1014A:Economics of Natural ResourcesIn a market with a fixed supply,tax does not affect the equilibrium quantity,thus does not lead to any allocation distortion.Henry George Tax:single tax on land.Why is land price in large cities in China increasing over the time?Current Rent reflects the demand for housing and the fixed supply of housing.Housing price reflects the present value of future rents plus appreciation.Expected housing prices after the development period(usually 3 years)determines the demand for land by developers(in the land auctions).The supply of land for development is decided by city governments.What do they want?2023/2/1014B:Environmental EconomicsEnvironmental Economics:study economics forces in environmental protection.Important environmental issues:water,air pollution,climate change,Public goods:non exclusivity,nonrivalry.Key question:how to correct distortion caused by externalities.Market Solutions:create markets for emission permits.Legal and regulations:environmental protection requirements.Coordination:international negotiations.2023/2/10Ch15:Capital,Interest,and ProfitsA.Basic Concepts of Interest and CapitalB.The Theory of Capital,Profits,and Interest2023/2/1015A:Basic ConceptsCapital:intermediary durable goods,an input and an ouput.Tangible capital:machinery,transportation,production plants,Intangible capital:patents,software,brand names,Capital market:where demand and supply of capital meet.Rental:payment for temporary use of capital goods.Financial assets versus physical assets2023/2/1015A:Basic ConceptsRate of return on investment:net return per year for one unit of investment.The rate of return on financial assets(usually loans)is called interest rate.Present value:value at the present time of a stream of future income.In other words,at the going interest rate,how much money invested today can generate the stream of future income.If the interest rate is r,one yuan today will be worth(1+r)next year,so the present value of(1+r)yuan next year is one yuan.If an asset can generate N yuan of income every year,then the present value is V=N+N/(1+r)+N/(1+r)2+.=N/r2023/2/1015A:Basic ConceptsIf an asset can generate yuan of income in year 1,yuan of income in year 2,and so on and so forth,then the present value is An application:the fundamental value of a share of a stock is the present value of future dividends per share.An application:asset prices tend to move inversely with interest rate.Optimal Investment Strategy:suppose you have an amount of money for investment,you want to invest in the choice that generates the highest present value,if investment risk is not an issue and if you know the future returns of all choices.2023/2/1015A:Basic ConceptsHow is the interest rate on a loan determined?Term or maturity:the longer the maturity,the higher the interest rate.Risk,or the chance that the borrower defaults on the loan:the greater the risk,the higher the interest rate.Liquidity:the more liquid it is,the lower the interest rate.Real versus nominal interest rate:Nominal interest rate:not adjusted for inflationReal interest rate:nominal interest rate adjusted for inflation.Real interest rate measures how much real return in terms of purchasing power one unit investment can generate in a year:If nominal interest rate is“r”,inflation rate is“i”,then the real interest rate is R=(1+r)/(1+i)1=(r-i)/(1+i),and when“i”is not large,approximately R=r-i.2023/2/1015B:Basic Theory Roundaboutness:production uses more capital as intermediate inputs tends to be more efficient.So capital investment is to save(or,sacrificing current consumption)in order to increase future consumption.Therefore,the quantity of capital and the rate of return on capital are determined byPeoples impatience:how much they prefer consuming now than in the future.Investment opportunity:how much future consumption can be increased from investment.2023/2/1015B:Basic TheoryShort run equilibrium in capital market:the supply of capital is fixed,and the demand for capital is given by the MRP of capital which is downward sloping.This determines the rate of return on capital and interest rate(on providing funds for the investments through saving)in the short run.If the short run equilibrium interest rate is higher than the peoples impatience(relative between current and future consumption),then people will save and make more investment in capital,thus increasing the supply of capital.2023/2/1015B:Basic TheoryIn the long run,the supply curve of capital is upward sloping,and the long run equilibrium determines the rate of return and interest rate,as well as the amount of capital in the long run.In the long run equilibrium,the interest rate equals to peoples impatience,and there is no net saving.This equilibrium analysis does not consider risk and inflation.2023/2/1015B:Basic TheoryAccounting profit(business profit or earning):=total revenue total expenses(wages,salaries,rents,material costs,interest payments,tax,etc.)Economic profit =total revenue total cost(including explicit expenses and implicit returns of factors)The implicit returns are the opportunity costs of the factors the firm owns.Owners time,efforts,and human capital.Other capital goods the firm owns,e.g.,physical assets or brand names.2023/2/1015B:Basic TheoryIn a perfectly competitive market,firms earn positive accounting profit but zero economic profit.In a risky business world,positive economic profit is a necessary reward for risk-bearing.Positive economic profit also accrues to firms that innovate new products and markets as a reward for innovation,through patents or temporary monopoly positions in the market(e.g.,Apple computer).Sometimes such profit for finding new market is called reward to entrepreneurship.2023/2/10Reminder:Midterm Exam 11-16.Review (for the beginning)Preview(for the next lecture)Homework (do not need to turn in,will be discussed in TA sessions)Thank you!2023/2/10
