Economics For Managers
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Chapter 8 : Rent And Wages
Theories Of Factor Pricing
Personal Distribution
Functional Distribution
Marginal
Productivity Theory of Factor Pricing
Modern theory of Factor
Pricing
Meaning Of Rent
Rent as a Differential Surplus
Scarcity Rent
Quasi-rent
Theories Of Rent
Ricardian Theory
Modern Theory of Rent
Relationship Between Rent And Price
Ricardian Analysis
Modern Analysis
Concept Of Wages
Distinction Between Real Wages And Nominal Wages
Real Wages
Nominal Wages
Factors Determining Real Wages
Theories Of Wages
Standard of Living Theory of Wages
Bargaining Theory of Wages
Modern Theory of Wages
Wages And Trade Unions
Productivity of Unionized Workers
Limited Supply of Workers
Chapter Summary
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Factors of production are the goods and/or services used in
production. The major factors of production are land, labor, capital and
entrepreneurship. Remuneration for the usage of land is paid in the form of
rent, for labor in the form of wages, for capital as interest, and for
entrepreneurship profit is the reward. According to traditional analysis,
determination of factor prices is different from the determination of product
pricing.
This is because the demand for a factor of production is derived demand and also
has joint demand along with other factors of production. However, modern
economists believe that the factors of production can also be priced based on
the forces of demand and supply in a manner similar to determination of product
prices. Various theories of factor pricing suggest the ways to distribute the
income among the factors of production |
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Micro theory of functional distribution of
income is also termed as the theory of factor pricing. Prominent
among the theories of factor pricing are the marginal productivity
theory of factor pricing and the modern theory of factor pricing.
Rent can be termed as the reward for land which is one of the four
factors of production. David Ricardo explained rent as differential
surplus which indicates that rent is the surplus of revenue over
costs which arises due to differences in the level of fertility or
usability of land. According to the modern theory of factor pricing,
the scarcity of land acted as the basis for the concept of rent.
Prominent among the theories of rent are the Ricardian theory and
the modern theory of rent. Labor is one of the four factors of
production. In economics, the term labor refers to both physical and
mental work. Wage is the remuneration paid for labor. Payment of
wages can be done in different modes such as time wages, piece
wages, task wages, cash wages, kind wages and service wages.
There is a difference between the nominal and real wages paid to
workers. Nominal wages refer to the amount of the wages as measured
in terms of money while real wages refer to the purchasing power of
the worker's remuneration i.e., the amount of necessaries, comforts
and luxuries which the worker can command in return for his
services.
Different economists have given different theories for the
determination of wages. The prominent among the theories of wages
are the standard of living theory of wages, the bargaining theory of
wages and the modern theory of wages. Trade unions also influence
the wage level of workers.
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