Factor markets and income generation. Factor Markets and the Generation of Factor Income

Features of the formation of demand and supply for the main factors of production

The markets for factors of production are the spheres of commodity circulation of such important groups of economic resources as natural resources (land, subsoil, water and forest resources), labor resources, investment resources (production capital). Each of the resource markets can be represented by a set of markets for a specific resource. For example, the labor market consists of a market of workers of various specialties, specialists in engineering and technical workers, etc. Since the consumers of the factors of production are the enterprises producing goods and services, and the producers are the owners of the factors of production, the price of the factor of production that consumers are willing to pay for its use will be the income of its owner: * The price of natural resources is rent; the price of labor -- wages; * the price of productive capital is a percentage. Prices for all types of factors of production in a market economy are formed through the interaction of supply and demand, similar to the prices of finished products. However, it is necessary to note two important points that affect the demand and, accordingly, the price of factors of production.

First, the demand for resources and the level of their prices are derived from the demand for finished products, since labor, capital, land are necessary in the final analysis in order to produce the commodities people need. Secondly, all factors of production are economically and technologically interconnected. Therefore, the magnitude of demand for each resource depends not only on the price level for this resource, but also on the price level for other resources.

The possibility of mutual substitution of various factors of production makes it possible to combine them in such a ratio that provides the lowest production costs and the greatest profit. The amount of resources used by the firm depends on their return or productivity, which is subject to the law of diminishing returns. Therefore, the firm will expand the use of resources until each additional resource increases revenue more than costs. Assume that the firm uses only one temporary resource, such as labor or a particular type of equipment). The increase in output in physical terms, provided by increasing this resource by one unit, is called the marginal product. The increase in the firm's income due to an additional unit of a given resource is called the marginal return of the resource or the income from the marginal product (MRP). The increase in costs due to the introduction into production of an additional unit of a variable resource is called the marginal cost of the resource (MRC). When a firm operates in conditions of perfect competition in a resource market, its marginal cost per resource will be equal to the price of this resource: MRC = P. The principle of choosing the amount of resource used by the firm is similar to the principle of determining the optimal positive volume of output. It will be profitable for a firm to increase the amount of resource it uses up to the point where its marginal return equals its marginal cost: MRP = MRC, or, in a competitive resource market, MRP = P. In practice, every firm is faced with a situation where several inputs are variable, and you have to choose in which combination to use them. At the same time, from all options for combining the resources used, with the help of which it is possible to produce a given amount of finished goods, the firm makes a choice, taking into account the prices of resources, in order to minimize its costs.

The firm will minimize costs when the ratios of the marginal profitability of each resource to its price are equal. The rule of least cost can be represented as follows: MRPA/PA = MRPV/PB, where MRPA, MRPV are marginal returns on resources A and B; RA, RV are the prices of resources A and B. It is obvious that if MPRA/RA is greater than MRPV/PB, it is advisable to transfer costs, reducing them by resource A and, accordingly, increasing them by resource B, since its marginal profitability is higher. Due to such an overflow of production costs, minimization of costs for a given volume of output can be achieved. There are various levels of output at which a firm can produce a product at the lowest cost. But there is only one level of output at which profit is maximized. To determine this level of output, it is necessary to apply the profit maximization rule: MRPA / PA = MRPV / PB = 1. Thus, when using resources in competitive markets, the firm realizes a profit-maximizing combination of resources if each input factor is used up to the point at which it marginal profitability is equal to its price: MRPA = RA; MRPV = RV. The market demand for a resource is the sum of the demands made by all firms in various industries that use this resource in the production process. Given that there are many consumers of a given resource in industries, and the demand for it depends on the demand for finished products, the market demand for a resource tends to be less elastic compared to the demand from an individual firm.

The market supply of factors of production (resources) is their quantity, which can be represented on the markets at current prices. In the markets for factors of production, demand generates supply in the same way as in markets for ordinary consumer goods. However, resource markets have significant features. Here, the proposal largely depends on the specifics of each specific resource as an economic benefit for the implementation of production activities in order to generate income. On the whole, the peculiarities of supply are due to the rarity and limited nature of economic resources, and above all, such as land, labor, and natural resources. The limited nature of primary economic resources is relative. They are rare and limited in comparison with the production need for them to produce the final goods needed at any given moment.

Labor market and wages

In economic theory, there are several approaches to determining wages. The classical school of political economy (A.Smith, D.Ricardo), exploring this category, reveals its content in the following theoretical provisions: - labor is a commodity and is sold at its cost or "natural price of labor"; - the natural price of labor is determined by the minimum cost of its reproduction, which corresponds to the minimum of the worker's means of subsistence; - wages as the market price of labor fluctuate at the level of the natural price of labor. Marxist economic theory clearly distinguishes between the concepts of "labor" and "labor force". Labor, from the point of view of representatives of Marxism, cannot be a commodity. What really confronts the owner of capital in the market is not labor, but the worker offering his labor power, i.e. ability to work. Therefore, wages are a converted form of the value and price of labor power as a commodity of a special kind. The concept of "transformed form" is used to show that in the conditions of capitalist relations, wages outwardly act as payment for labor, thereby distorting and masking their essence. Thus, Marxist economic theory proves that wages fluctuate around the cost of labor power, which, in turn, is determined by the cost of life's goods necessary for the reproduction of the worker and his family. The neoclassical direction in economic theory considers wages as factor income. It represents the price paid for the use of labor, i.e. for labor services provided by employees of various professions in the implementation of their business activities. The term "wage" is also used to denote the rate of remuneration per unit of time - per hour, day, month, etc. Therefore, it is necessary to distinguish between the concepts of "wages" and "total earnings": the latter depends on the wage rate and the amount of time worked. It is also important to distinguish between nominal and real wages. Nominal wage-is the amount of money received by the worker for his daily, weekly, monthly work. Real wages are nominal wages adjusted for inflation. It characterizes the amount of goods and services that can be purchased for nominal wages. Thus, an increase in nominal wages by 10% with an increase in the level of consumer prices by 5% gives an increase in real wages by 5%. The level of wages, according to the neoclassical approach, is determined by the interaction of labor supply and demand in the market. Consider the functioning of this labor market under conditions of perfect competition. First of all, we note that business and the state are the subjects of demand in the labor market, and households are the subjects of supply. In a market of perfect competition, the amount of wage labor used by entrepreneurs will be determined by two main indicators - real wages and the marginal profitability of labor. With an increase in the number of hired workers, ceteris paribus, due to the law of diminishing returns, there is a decrease in the marginal profitability of labor. Recall that the optimal amount of resource used is characterized by the equality of the marginal profitability of the resource and the marginal cost per resource (MRP = MRC). Therefore, the involvement of an additional unit of labor by the entrepreneur will stop when the marginal profitability of labor equals the value of real wages (MRPL = W). The demand for labor is inversely related to wages. With an increase in wages, ceteris paribus, the entrepreneur, in order to maintain equilibrium, must correspondingly reduce the demand for labor, and with a decrease in wages, the demand for labor increases.

But the relationship here is different. As a rule, sellers in the labor market in conditions of perfect competition tend to increase supply with an increase in wages. Therefore, the labor supply curve (Figure 5.2) takes a different form than the labor demand curve. 50 The labor supply curve shows that when the real wage rises, the supply of labor rises, and when it falls, the supply of labor falls. In general, labor supply in labor markets is formed under the influence of a combination of the following conditions: total population; the number of active able-bodied population; the number of hours worked per year; quality parameters of labor, its qualifications, productivity, specialization. The labor supply curve in Figure 5.2 characterizes the total supply of labor in the economy. The individual supply of labor (of an individual or a certain group of workers) may be characterized by a curve that has a different configuration. And now let's combine both graphs - the demand curve and the supply curve - and analyze in more detail the situation on the labor market.

Labor supply surplus LE LS1 DL SL Labor price, i.e. wages in the labor market are established as a competitive balance of supply and demand for various categories of workers, types of work, etc. At point E, the demand for labor equals the supply of labor. This point on the graph corresponds to a certain level of real wages (WE) and the labor supply (LE) given by this level. In the position of market equilibrium, firstly, all entrepreneurs who are ready to pay wages WE fully satisfy their demand for labor; secondly, all workers who agree to work at wages WE find jobs. In this sense, the market equilibrium point E determines the position of full employment. For any value of wages other than WE, the equilibrium in the labor market is disturbed. Wage (WE) is the equilibrium price in a given market. If real wages exceed the equilibrium level (case W1), supply in the labor market (0 - LS1) exceeds demand (0 - L D1) by L D1 - LS1. There is unemployment. In the case of a decrease in real wages compared to the equilibrium (for example, to the level W2), demand in the labor market (0 - L D2) exceeds supply (0 - LS2) by the amount L S2 - L D2. As a result, there is a shortage of workers willing to work for wages W2. Both of these situations (unemployment and shortage of workers) in a market of perfect competition cannot be sustainable, they are subject to correction by the market mechanism in the direction of restoring full employment. Above, we proceeded from the average level of wages, which is formed as a result of the interaction of labor demand and labor supply.

Wage differentiation is a consequence of differences in abilities (innate and acquired), educational level (general and special), professional training, experience and, ultimately, qualifications that different categories of workers possess. In addition, different types of work vary significantly in terms of attractiveness. Inconveniences in work, the harmful nature of production must be compensated by wages. Differences in wages, which are intended simply to compensate for the shortcomings of certain jobs, are called equalizing differences. Differentiation in the amount of wages is, of course, an objective phenomenon, since the professional composition of workers is expanding, and the professional mobility of people has certain limits.

But one thing is certain: directed actions to develop abilities, improve skills, any investment in human capital increase the possibility of obtaining higher wages. The labor market has several models - competitive, monopsonic, models with the participation of trade unions - depending on the nature of the formation of demand and supply of labor, as well as the price of labor, the ability of buyers and sellers of labor to influence the ratio of supply and demand and wage levels. In a competitive labor market, neither sellers nor buyers are able to influence the conditions for the sale of labor.

In a monopsony market, the buyer determines the scale of demand and the price level; in a monopoly (trade union) market, the seller of labor. Above, we examined the mechanism of action of the competitive labor market. However, perfect competition in the labor market is the exception rather than the rule. Most markets are characterized by imperfect competition. Its extreme case is represented by monopsony (from the Greek monos - one and opsoma - the purchase of food; a market in which there is one buyer of a product, service, resource). This situation is not uncommon in small towns, where the town's economy is almost entirely dependent on one large firm that provides work for the bulk of the population. In this case, the company is actually the only buyer in the local labor market, and therefore has the ability to influence the level of wages.

This is achieved by reducing the number of hired workers. As a result of increased competition between employees, their wages fall below the equilibrium level. Trade unions play an important role in the labor market. A trade union is an association of workers that has the right to negotiate with the employer on behalf and on behalf of its members. The goal of the trade union is to maximize the wages of its members, improve their working conditions and receive additional payments and benefits. A trade union can operate in conditions of both perfect and imperfect competition. In a competitive labor market, unions operate in two ways. They seek either to increase the demand for labor or to limit the supply of labor. An increase in the demand for labor is achieved by an increase in the demand for a product (advertising, the use of political lobbying, etc.), as well as an increase in the efficiency and quality of labor.

Restrictions on the supply of labor may be the result of the union's activities to include this profession in the list of licensed professions, shorten the work week, prohibit or reduce overtime work, curb the immigration of foreign workers, restrict child and female labor, etc. One of the activities of the trade union is the struggle for the expansion of state regulation and regulation of labor, in particular, the establishment of a minimum wage above the equilibrium level. At the same time, the average level of wages increases, but the scale of hiring workers is also reduced. The negative consequences of raising the minimum wage affect primarily the unskilled labor market and the situation of those who are unemployed. On the whole, however, employed workers (and especially the most skilled) benefit from an increase in the minimum wage, since it is accompanied by a revision of the entire system of wage rates in the direction of its increase. If a union has monopoly power in the labor market, it will seek to limit the supply of labor in order to raise wages.

Land market and land rent

"Earth" in economic theory refers to all natural resources (fertile soil, fresh water reserves, mineral deposits). In this section, for simplicity, the word "land" will denote only the surface of the soil, which can be used for agriculture or for the construction of buildings and structures. A feature of land as an economic resource is the limited supply of it. This limitation is not observed in the formation of labor supply or capital supply, since the last two factors of production are freely reproducible. The specific factors influencing the supply of land are its fertility and location. Therefore, when we talk about the limitedness of the land, we mean the land of a certain quality, located in a certain place. The limited supply of land means that the supply curve is perfectly inelastic. This means that the supply of land cannot be increased even in the face of a significant increase in land prices. This is due to the action of the well-known law of diminishing returns (the law of diminishing soil fertility): as land is involved in economic circulation (at a given level of development of technology and technology), we will have to move from the best land in terms of fertility to average and even worse.

Agricultural demand for land in a developed market economy is derived from the demand for food. It consists of the demand for crop production, animal husbandry, etc. Demand for land takes into account the level of soil fertility and the possibility of improving it, as well as location - the degree of remoteness from the centers of consumption of food and raw materials. The price that balances the demand for land and the supply of land is land rent. In neoclassical theory, economic rent is the income from any resource whose supply is inelastic. Economic rent, for example, can be received by persons with unique abilities - pop stars, outstanding athletes, etc. Therefore, ground rent is a special case of economic rent. Land rent is a payment for the use of land and other natural resources, the supply of which is strictly limited. The supply of land and other natural resources acts as a supply, rent as a flow. 53 Consider first the rent received by all owners of land, regardless of its quality. K.Marx called such rent absolute rent*. For the analysis, we proceed from a number of prerequisites.

1. Complete subordination of agricultural production to the market, i.e. lack of agricultural production for own purposes.
2. Separation of land as an economic object from land as an object of ownership, i.e. all lands are leased in a perfectly competitive market.
3. All land is used to produce the staple food.
4. All lands are of the same quality, equally productive. The principle of establishing rent, or rent (neoclassicists often use the two terms as synonyms) as a balancing price, is the same as in the case of other factors of production.

RA is the equilibrium price in this market, which means the level of land rent for one hectare of land. The area of rectangle ORAAQ1 is the total absolute rent for all the land used in a given society.

The proposed model of absolute rent assumed the same quality and the same location of the land. In reality, the land differs (differentiates) both in terms of fertility and position, which determines its different productivity. Suppose that there are three plots of land - I, II, III, differing in natural fertility (the largest - on plot I, the smallest - on plot III).

This means that the owner of this plot of land will receive a differential rent equal to the area of the shaded rectangle. The owner of plot II, where the average cost of production is higher, will receive a smaller amount of rent. Finally, the owner of plot III will receive no differential rent at all. Thus, the worst land (section III) will give its owner only absolute rent, while the average (section II) and the best (section I) will give differential rent along with absolute rent.

So, the differential ground rent is the income received as a result of the use of limited land resources of higher productivity in the situation of ranking these resources (in this case, according to the fertility of the land). The ranking of land plots can also be carried out by location in relation to the market for agricultural products. The fertility of the earth is not given once and for all. It can be improved or worsened as a result of managing the land. Artificial fertility can be added to natural fertility. The additional return on capital investment can increase labor productivity, lower it, or leave it at the same level. In the event that additional capital investments lead to an increase in production efficiency, one speaks of an increasing additional return. Then, when the lease is renewed, the rent will also increase. In the event that additional capital investment leads to a general drop in production efficiency, one speaks of declining additional returns. The rent will then decrease. If the additional investment of capital does not change the level of efficiency, the additional return will be constant. The rent will remain at the same level. In a market economy, land will acquire a commodity form: it is bought and sold. In this regard, it is important to find out what determines the price of land. The price of land is determined by capitalizing the rent. Let us suppose that a piece of land brings in an annual rent of R dollars. What could be the price of this piece of land?

To answer this question means to determine the opportunity cost for the owner of the land. The price of the land must represent the amount of money that, by putting it in the bank, the former owner of the land would receive a similar interest on the invested capital. The considered definition of the price of land is theoretical. In practice, the price of land depends on many factors that affect the demand and supply of land.

Capital market and interest

There are different approaches to defining the essence of capital in Marxist political economy and in Western economic theory (economics). Marxist political economy regards capital as a self-increasing value, or as a value that brings surplus value. At the same time, surplus value is the excess of value created by the worker's labor in excess of the value of his labor power. How is added value created? By consuming the means of production, the wage worker in the process of production by his concrete labor creates a new use value and at the same time transfers the value of the spent means of production onto the product being produced. At the same time, spending abstract labor, he produces a new value, which includes the equivalent of the value of the commodity "labor power" and surplus value. Why does a worker, creating new value, not only reproduce the equivalent of the value of his labor power, but also create surplus value? 55 Having paid the cost of the commodity "labor power", the capitalist acquires the right to dispose of its use value at his own discretion. By forcing a worker to work for a longer time than is necessary to reproduce the equivalent value of the commodity "labor power", the capitalist obtains surplus value. Thus, surplus value is a specific form of surplus product created by the labor of hired workers and appropriated by the capitalists free of charge. Capital as a self-increasing value expresses the production relation of bourgeois society, the relation between its main classes, the capitalists and wage workers, the exploitation of wage workers by the capitalists. Consequently, capital, from the point of view of Marxist political economy, is not a thing, but a certain production relation, which is represented in a thing. Western economic theory usually means by capital assets that have two characteristics: 1) they are the result of investments; 2) generate a stream of income over a certain period of time. Therefore, in its most general form, capital is defined as a value that brings a stream of income. From this point of view, capital can be called securities, and investments in knowledge, and a stock of material goods. In this regard, it is customary to distinguish between financial capital, human capital, and physical capital. Financial capital is an investment in securities that brings financial returns in the future in the form of dividends and capital gains (increase in the value of a block of shares). Human capital is an investment in the development of knowledge, skills and abilities of a person that increases the effectiveness of his work. Human capital is a measure of the ability to generate income embodied in a person. Considering capital as a factor of production, economists speak of physical capital. It represents the stock of produced durable goods involved in the production of goods and services. There are three categories of capital goods: buildings and structures (for example, factories and houses), equipment (consumer durables such as cars and manufactured durables such as machine tools and computers), and inventories, i.e. reserves of resources and products. In general, physical capital is divided into fixed capital, which includes durable capital goods, and working capital, spent on the purchase of funds for each production cycle: raw materials, basic and auxiliary materials, etc. Fixed capital serves for several years and is subject to replacement (reimbursement) only as it becomes physically or obsolete (the latter means the depreciation of fixed capital as the cost of its production becomes cheaper or with the start of production of machines and equipment of a fundamentally new quality, which makes the use of old fixed capital technically and economically disadvantageous). Each year, the owner of fixed capital writes off a certain part of its value (carries out depreciation). For example, if a machine costs $10,000 and lasts 10 years, then if its cost is written off evenly, the annual depreciation will be $1,000 per year. Working capital is fully consumed during one production cycle, and its value is included in production costs in its entirety, in contrast to fixed capital, the value of which is taken into account in costs in parts (in the amount of depreciation). Capital, like labor, is productive because it can produce more output (or increase your income). But if the labor factor appears as a phenomenon created outside the economic system, then capital goods appear as a factor produced by the economic system itself. The net productivity of capital can be represented as the ratio of annual net income (annual gross income minus costs) to the amount of invested capital, expressed as a percentage. Presented in this way, the net productivity of capital is also called the rate of return on capital (or return on capital). It shows the amount of income (money) received from each unit of invested capital, and is usually calculated as a percentage per year. With productivity, capital is therefore in demand by entrepreneurs. The demand for capital can be represented graphically as a curve with a negative slope. It is a reflection of the marginal return on capital. The negative slope of the demand curve for capital indicates that the marginal revenue, and hence the marginal return on capital, declines as the stock or amount of capital invested increases. Such a dependence is explained by the action of the law of diminishing returns (returns), which we know, which applies both to investment capital investments and to other factors of production. The supply of capital in the short run, when the economy has a fixed stock of capital inherited from the past, can be graphically represented by a vertical line. The supply of capital is a reflection of its marginal opportunity cost, which increases as the amount of capital invested increases. Let us give a simple interpretation of this proposition. In pursuit of the goal of increasing the amount of capital, it is necessary to reduce the current production of goods, thereby increasing the marginal utility of their remaining part. At the same time, today's accumulation of capital will lead to an increase in the number of goods in the future and, as a result, their marginal utility will decrease. Thus the marginal opportunity cost of capital—the ratio of the marginal utility of goods not produced today to the marginal utility of goods that will be produced in the future—increases as the stock of capital increases. To create and increase capital, investments of funds are necessary - investments. Investing is the process of creating or replenishing a stock of capital. Therefore, the demand for capital appears in the form of demand for investment funds necessary for the acquisition of capital in its physical form. But where do the investment funds needed to create capital come from? Someone has to save or abstain from current consumption in order to provide the resources to buy capital goods. In a modern market economy, households and firms invest financial resources (funds) in capital goods, saving money in various financial assets (buying stocks and bonds; placing money in savings accounts, investing it in pension funds, etc. ).

All of these assets are mechanisms for pumping funds from savers to investors who actually buy capital goods.

By saving, people expect to earn income. This income is the interest rate (interest rate), or financial income on funds. The interest rate is the price paid to the lender (owner of funds) for the use of his funds for a certain period of time; interest rates are assigned as a certain percentage income for the year. Thus, the demand for capital and the supply of capital on the surface of economic reality take the form of a demand for investment funds and a supply of investment funds.

The demand curve for investment funds shows that, ceteris paribus, economic agents will more often resort to the services of the loan capital market, directing the funds received to investments, as the interest rate decreases. The nature of the supply curve reflects the fact that an increase in the interest rate contributes, ceteris paribus, to an increase in the supply of funds in this market. At the point of intersection of the curves DC and SC equilibrium is established in the capital market. At point A, the marginal return and the marginal opportunity cost of capital coincide; the demand for investment funds at the same time coincides with their supply. In this equilibrium, firms are willing to pay 12% per annum for borrowing funds to purchase capital goods. At the equilibrium point, lenders are also satisfied, receiving the same 12% per annum for offering investment funds. Thus, under conditions of perfect competition, the competitive rate of return on capital is equal to the market interest rate, which serves as a kind of equilibrium price in the capital market. At any higher rate of interest, firms will refuse to borrow funds to finance their investments; at any lower rate of interest, firms will compete intensely for too scarce capital. Only when the interest rate is in equilibrium will supply and demand be balanced. The market rate of interest plays an important role in the economy.

1. It normalizes the rare supply of capital goods, leading to the fact that they are used in areas of investment that bring the highest return. Firms always compare the expected rate of return on capital with the current market rate of interest on loans, guided by the following rule, investments should be made if the expected rate of return on capital is not lower than the market rate of interest.
2. The market rate of interest induces people to give up part of their current consumption in order to increase the stock of capital.
3. The market rate of interest plays an important role in the discounting procedure.

When analyzing the category of interest, it is important to distinguish between nominal and real interest rates. The nominal rate is the current market interest rate, excluding inflation. The real rate is the rate of interest adjusted for inflation, i.e. expressed in monetary units of constant purchasing power, it is determined as the difference between the nominal interest rate and the inflation rate. The above functions performed by the market interest rate refer to the real interest rate. In conditions of perfect competition, there is a tendency to establish a single rate of interest. However, real competition is far from perfect. Therefore, even in a developed market economy, there is a wide range of rates. The interest rate depends on the degree of risk; urgency (short-term loans, medium-term and long-term), loan size, taxation system (presence or absence of benefits for certain categories of loans); capital market structures, etc. Control questions 1. Name the fundamental differences between the labor market and other markets for production resources and explain how it achieves equilibrium. 2. Explain the mechanism of differential rent formation. 3. What is the discounting procedure and why is the value of t not taken into account in the discounting formula when determining the price of land? What factors in practice determine the price of land?

Factor markets are an important structural element of a market economy. The optimality of their use depends on the efficiency of the functioning of the markets for factors of production, which means the stability and balance of the economy, the performance of firms. There are markets for natural resources (land), capital and labor.

Properties of markets for factors of production:

1. Since resources are bought and sold, they naturally have a price. The prices of economic resources act in a market economy in the form of monetary income: profit, wages, rent and interest.

2. The price of resources is formed depending on supply and demand, which have their own characteristics:

a) the demand for resources is derivative, secondary, i.e. depends on the demand for the final product;

b) all resources cannot participate in production separately, they function in certain combinations. All of them complement each other. At the same time, they are interchangeable: machines and equipment - labor.

c) the demand for resources is also affected by labor productivity: if it increases, then demand also grows.

3. The supply of factors of production depends on the specifics of each market. However, common to all markets is that the amount of resources is limited compared to their production needs.

The main criterion for the company's behavior in the resource market is the marginal profitability of the resource (MRP) - this is the change in the company's income due to the introduction of an additional unit of this resource. In a competitive resource market, the acquisition of each additional unit of the latter increases the costs of the firm by the same amount, i.e. to the price of the resource. Thus, the price of a resource acts as the marginal cost of a factor of production (MRC). The firm will demand a factor of production as long as the marginal cost of using an additional unit of resource does not exceed the marginal product obtained from using this additional unit of resource. The equilibrium of the firm occurs at the point where MRP=MRC. At this point, the firm maximizes profit.

The firm seeks to choose a technology that minimizes costs, and prefers, as a rule, a relatively cheaper factor of production. In other words, if the price of labor increases, then capital becomes relatively cheaper and the demand for it rises. This phenomenon is called the substitution effect. The substitution effect helps, in particular, to understand why the demand curve for a factor of production is downward and has a negative slope.

Thus, the entrepreneur seeks to select such a combination of resources that allows him to carry out a given output at minimal cost. It would be wrong to assume that this goal is achieved by acquiring the cheapest resources, because the company is interested not only in the price of the resource, but also in its performance. Costs are minimized when one ruble invested in different factors of production ensures an equal increase in production. In other words, MPK/PK=MPL/PL, where K is capital and L is labor.

When studying the labor market, it is necessary to determine the product that is sold and bought in this market, highlight its features, price and its types, as well as consider the specifics of the formation of supply and demand in this market.

The commodity in the labor market is labor power, not labor. Labor is a process, an activity, and the employer buys a person's ability to work, i.e. his workforce. Features of the labor force as a commodity: it is inseparable from the owner, therefore, the labor force is mobile; characterized by different physical data and abilities, as a result of which, when concluding an employment contract, it is impossible to determine in advance the real level of the employee’s labor efforts; has unequal qualifications, dictating the need for differences in the wages of workers of different professions; because labor is inseparable from a person, therefore, it includes social, psychological and political aspects.

Factors influencing the supply of labor: demographic - the rate of growth of the population and its able-bodied part, age and sex structure; economic - working hours, the state of pension provision, unemployment rate; psychological - the desire to work; social - prestigious moments; factors related to education and training.

Features of the labor force resource have an impact on the formation of demand for labor: it always develops at the level of an individual firm. However, the supply of labor is formed at the level of the industry, the entire industry or society, because the workforce is mobile. To understand the mechanism of this behavior, it is necessary to consider two effects of wage increases: the substitution effect and the income effect.

The substitution effect encourages people to work harder, because a rise in the wage rate makes leisure uneconomical. The income effect is that a higher wage increases a person's well-being, he begins to value free time more and, most importantly, he can afford more leisure without lowering his standard of living. Depending on which effect prevails, the supply of labor from the worker will either increase or decrease. Usually, at low wage rates, the substitution effect prevails, i.e. people want to work more. Consequently, the labor supply curve for an individual worker (Figure 13) will not always be upward.

Figure 13 - Individual labor supply

With regard to the market supply of a particular type of work, the curve in this case will be purely upward, since higher wage rates will attract more people willing to do this type of work.

The price of labor power is wages. Wages include the costs of reproduction of the labor force (for personal consumption and his family), reimbursement of increased costs, taking into account the quality of the labor force (complexity, conditions, intensity of work, etc.), legislative social guarantees for the employee in terms of employment relations (work at night, overtime , in regions with a special climate, etc.). Wages perform three main functions: reproductive, motivational and regulatory.

The choice of forms of remuneration is carried out by the enterprise, based on the conditions of production, quality, labor rationing, the possibility of increasing the volume of production, etc. In the practical activities of the enterprise, two forms of remuneration of labor are widely used:

1. Time wages depend on the hours worked and the qualifications of the employee. This form is used in the conditions of regulated, given technological regimes, therefore, in the era of scientific and technological revolution, it became predominant.

2. Piecework wages (or piece wages) are derived from the time-based form and are established depending on the volume and quality of the products produced. Each form of wages has its own wage systems: simple time-based, time-bonus system, salary, direct piece-work, piece-progressive, piece-bonus, lump-sum. There are also nominal wages - the amount of money that the employee receives for the results of his work; and real - the amount of goods and services that a worker can buy with his wages.

Please note that the labor market has several models - competitive, monopsony and trade union. The specificity of the model affects the formation of wages.

Factor markets and income generation

Economic theory and mathematical modeling

Factor markets and income generation. Factor markets and income generation Demand for factors of production Factor markets are labor markets, capital, land, minerals, information, knowledge, intellectual abilities, and entrepreneurial talent. Markets for factors of production have their own characteristics that must be taken into account. All factors of production used in economic activity can be divided into two groups: 1 material which include capital and land; 2 social...

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Derived demand for factors of production.

The markets for factors of production are the spheres of commodity circulation of such important groups of resources of economic activity as land, natural minerals and artificial raw materials, labor resources of various specialties and qualifications, capital and technical resources.

In a developed market economy, the markets for factors of production include millions of items, including information, knowledge, intelligence, and ways to transfer them. The movement of factors of production is mediated by the money and securities markets and is regulated by the relevant economic policy of the state.

A specific feature of the demand for any factors of production is that it has a derivative, secondary character. The derivative nature of the demand for factors of production is explained by the fact that the need for them arises only if they can be used to produce end consumer goods that are in demand, i.e. goods or services for ordinary consumer purposes.

Demand for factors of production is presented only by entrepreneurs. Factor markets provide entrepreneurs with information about prices, technical and economic characteristics of goods, levels of production costs, supply volumes, etc. The organization of the production process requires many factors: labor, land, technology, raw materials, energy, which to a greater or lesser extent can be complementary or interchangeable: living labor can be partially replaced by technology, and, conversely, natural raw materials can be replaced by artificial and etc. However, labor, technology, and raw materials are intertwined and complementary only in a single production process, and individually, each of them is useless.

The demand for factors of production is an interdependent process, where the volume of each resource involved in production depends on the price level not only for each of them, but also for all other resources and factors associated with them. Price is one of the most important conditions for changing the elasticity of demand for each factor of production. Demand is more elastic for those factors that, ceteris paribus, have a lower price, which allows for mutual substitution, displacing expensive factors of production, and reducing production costs.

The elasticity of demand for each specific factor of production may vary depending on: the level of income of the firm and the demand for manufactured products; the possibilities of mutual substitution of resources and factors used in production; availability of markets for interchangeable and complementary factors of production at affordable prices; striving for innovation, etc.

The supply of factors of production is their quantity, which can be presented on the markets at the prices existing at the moment. The supply in the markets of production factors largely depends on the specifics of each specific factor of production as an economic benefit for the implementation of production activities in order to generate income. In general, the peculiarities of the supply are due to the relative rarity, limitedness, primarily of primary resources (land, labor, natural resources, raw materials and products of their processing). If resources were not limited, they would be free as air, and the various needs of people would be completely satisfied once and for all, there would be no need for markets, the economy.

The supply of factors of production is subject to the law of rarity, limited resources.

Markets reveal that the supply of each particular factor of production has a different elasticity. So, for example, the supply of land is most often inelastic, because at any given moment, its size is fixed, there is no substitute resource for land, it is a unique, non-reproducible economic good. The amount of labor resources at any given moment is fixed and changes quite slowly, but its elasticity depends on the specific economic situation, the realization of full employment opportunities at given incomes and wage levels. The supply of practically non-renewable resources of raw materials is more elastic if alternative, interchangeable, including artificial types of raw materials and materials are found.

The labor market and wages.

The labor market tends to equilibrium, in which the aggregate demand for each category of labor force will coincide with the existing supply for it. This balance also depends on the state of the markets of other factors: land, raw materials, machinery, technology, consumer goods.

Fig.8.1. Labor market. Labor supply based on the substitution principle of the "income effect" and "leisure effect".

A feature of labor markets and, in particular, labor supply is that in many respects the employee himself determines how much time he would like to work and how much to rest. This determines the duration of employment contracts in any sector of the economy, provided that the level of payment is satisfactory for the worker. The “work-leisure” dilemma in relation to the labor market has been called the “substitution effect and the income effect”, which can be demonstrated on a graph with a peculiar slope of a gently rising labor supply curve (Fig. 1). The characteristic slope of the labor supply curve shows that rising wages stimulate the worker to work only up to a certain point. During this period, leisure and free time are sacrificed to the interests of high earnings.

Upon reaching a high financial position and well-being, the worker will suspend the further supply of his labor and refuse additional employment, even with the continued growth of wages. For this worker, the “income effect” is no longer a priority and is sacrificed for the sake of pastime and leisure alternative to work. The “income effect” is replaced by the “leisure effect”.

In general, labor supply in labor markets is formed under the influence of a combination of the following conditions:

total population;

number of active able-bodied population;

the number of hours worked per year;

qualitative parameters of labor, its qualifications, productivity, specialization.

The overall level of labor productivity depends on the cooperation of capital, resources, technologies, and the improvement of production methods. The general level of wages also depends on them, however, it also rises when the supply of labor is limited in comparison with other factors of production and a fixed demand for labor.

In labor markets, the price of labor, i.e. wages are established as a competitive balance of supply and demand for various categories of workers, by types of work, by the presence and absence of trade unions that influence the demand and supply of labor and seek to increase its payment for the employed part of the workers. Wages are one of the most important and most massive form of income in any economy. The regulation of many processes in the economy is associated with the movement of wages. For example, one of the indicators of the level of inflation is the gap between nominal (the amount of cash payments) and real (the amount of goods and services that can be purchased for the amount of nominal wages) wages.

In most cases, the difference in wages depends on the professionalism of the workers and the types of work performed.

A special group is made up of people with talent or unique abilities: musicians, scientists, statesmen, etc. The payment for their work includes an element of economic rent, payment for the exclusivity of their natural talents.

If there is a competitive environment in labor markets, then the level of wages for each professional group is set under the influence of mutually balancing supply and demand for labor. But in a real situation, on the one hand, this difference is due to the policy of employers in the field of hiring workers and setting their wages, and on the other hand, due to monopoly tendencies in the field of labor supply and its payment, generated by the actions of, for example, trade unions. . As a result, the market equilibrium can be disturbed either by an increase in wages and an increase in unemployment, or by an increase in employment and inflation of nominally rising and actually falling wages.

The imbalance of supply and demand occurs most often as a result of the monopoly influence of trade unions, demanding: firstly, to increase wages, often without taking into account other economic conditions; secondly, to accelerate the replacement of labor by capital, without taking into account other economic conditions, which causes a relative decrease in the demand for labor; thirdly, to take measures to limit the supply of labor in the industry covered by the union, etc.

An increase in the demand for labor on the part of entrepreneurs can only occur if the newly attracted additional labor is more productive. Only the growth of labor productivity is the real basis for raising wages. The problem can only be that the part of the labor force that, for various reasons, cannot meet the requirements of high labor productivity, will be out of employment.

Capital market and interest.

Capital in a broad sense is “everything that can generate income”, or “resources created by people for the production of goods and services”. It is subdivided into physical capital - the means of production (machinery, equipment, buildings and structures, vehicles, tools and stocks (funds) of raw materials and semi-finished products), money capital - funds for which physical capital is acquired.

The market of capital and capital assets is an integral part of the market for factors of production.

In the modern economy, the boundaries of the concept of capital extend to physically tangible (buildings, structures, land, etc.) and intangible (software, various information) objects.

The price of capital assets is the income that they are able to bring as a result of use, production application.

The generalized expression of income on capital, capital assets is the annual interest rate, i.e. such a value of income, which is calculated for a certain period of time, most often for a year3 as a percentage of the amount of capital used. The amount of income received is the price of capital and capital assets, up to such forms as cash, loans, securities, and much more.

All economic goods of production purpose, being expressed in monetary form, acquire the form of a capital asset circulating on the market.

Interest as income on capital assets will be the higher, the higher the productivity of real economic goods represented by capital assets as factors of production.

For complex production processes at the present moment or for their implementation in the future, the accumulation of funds is required, which, as they are converted into real capital, will be highly productive, and therefore will bring higher income in the future. It is for this purpose that capital is accumulated and invested. The evaluation of profitability is carried out on the basis of the net productivity of capital, calculated, firstly, after all payments from profits, and, secondly, in comparison with the costs incurred. An effective investment project is a project, the annual income from which is not lower than the market rate of interest for any other capital asset, including the bank interest rate.

The principle of discounting.

Discounting is the calculation of income, or the determination of the estimated value of the net productivity of capital. The bank interest rate plays a decisive role in these calculations. On its basis, the income in the form of interest is calculated, which can be received from future investment projects.

Discounting is carried out according to the formula:

where D is the current present value

Dt is the annual future return on an asset invested for a period of t years.

P is the rate of bank interest.

Industrial and other investments make economic sense only if the annual income from them is higher than the interest on bank deposits (deposits), and even more so on all other assets, the investment of which is associated with risk. Prices for investment goods, such as equipment, raw materials, materials and others, are set depending on future income from their productive use, calculated using discounting.

Investment decisions are justified on the basis of such parameters of the current moment as the price of investment goods purchased on the market, the rate of interest, the level of annual income from the use of these goods, the price of their possible sale at residual value at the end of their service life.

The lending rate is the price paid for the use of money.

The definition of the rate of interest and return on capital are fully consistent with the theory of supply and demand. Demand for capital is affected by the desire to invest capital, and supply by its quantity. The values of returns on capital and interest rates are different for the short-term and long-term periods (Fig. 2).

Rice. 8.2. Return on capital and interest rate in the short and long run.

In the short run, changes in working capital are unrealistic. This is shown on the graph by the vertical lines S. At point E, the return on capital and the interest rate in our example are 10%. With a higher rate, additional capital would enter the market and increase the supply of capital. Conversely, at a lower rate of interest, there would be companies that would demand capital. But the equilibrium at point E is short-term, because over time, as a result of the accumulation of savings, the supply of capital grows. With an increase in capital supply from short-term (direct S1. S2. S3….) supply, we move to the SiSi curve (capital supply in the long run). In the process of accumulation, the economy moves down the SiSi curve. Adequately, the rate of return on capital and the rate of interest move down to the point Ei (equilibrium in the long run). Fluctuations around the point Ei are inevitable as a result of the relationship between supply and demand. Upward movement is possible and inevitable as a result of using the achievements of scientific and technological progress in production. In modern conditions, this is not only scientific and technical progress, but also the development of the social division of labor between countries.

Market of land resources and land rent. Land price.

Economic rent is the price of land paid by the tenant to its owner for the possibility of productive use and profit. Rent is part of this profit and is paid by distributing it to the owner of the land (ownership of the land with its natural resources and real estate) in the form of rent. Often, rent also includes rent if the land is leased for economic use with structures built on it. The rent is an independent form of payment, in which only real estate (ie structures, buildings, etc.) is used.

In the markets for factors of production, land, its resources and real estate are included in the commodity circulation as resources that do not have an alternative to mutual substitution in many areas of management. They generate economic rent because their supply in the markets is inelastic or insufficiently elastic.

Fig.8.3. Demand and supply of land.

SS - inelastic land supply;

DD - potential demand for land;

D1D1 - demand in conditions when the land does not bring rent;

E - the equilibrium price of land, established at the level of PE in accordance with supply and demand.

The land supply curve graphically looks like a perfectly vertical line. It is possible to increase the productivity of land, to improve its quality, it is possible to increase the market level of rent as payment for land, or to reduce this level to a minimum, but the amount of the aggregate supply of this factor of production at any given time cannot be increased. Net economic rent is determined by the ratio of supply and demand for land in the markets.

With regard to the inelastic supply of land, its resources and real estate as factors of production, market demand is the most important condition for pricing, including rent and rent in production costs. For entrepreneurs, the demand for land and the factors of production associated with it must match the amount of marginal product received in monetary terms. The slope of the demand curve means a gradual decrease in income, which can be counteracted by improving land use methods, the use of advanced technologies and the use of such factors of production. One of the conditions for changes in the demand for land and the factors of production associated with its use is the market rate of interest. Calculation of rent depending on the rate of interest is a kind of discounting of such a capital asset as land, its resources or real estate located on it. The discounted amount of rent is necessary when concluding agreements on the use of these factors of production for a given period. Discounting, i.e. the calculation of the future amount of income in the form of rent is carried out as follows:

where DR is the discounted amount of rent;

R - annual rent;

r - norm in percentx.

Differential rent - rent received from more profitable plots of land and containing some positive difference in income arising from more fertile, more advantageously located lands, with a less deep and more productive content of fossil resources, etc.

Economic profit as factor income.

As noted in Topic V, full costs also include normal profit as the minimum income of an entrepreneur necessary to attract and retain this resource in a given production process. Economic profit arises if the total revenue exceeds all costs - both explicit and implicit, including the latter and normal profit. It is economic profit, which is not included in costs, but is an excess over normal profit, that goes to the entrepreneur as factor income.

Zero economic or normal profit is a consequence of a static economy and free competition in its purest form. But in reality, there is always a certain degree of competition imperfection (monopolization of the market), market disequilibrium, and non-optimal behavior of individuals. In addition, the economy is always in a state of dynamics, as the population changes, new sources of raw materials open up, science and technology develop, new needs arise, etc.

In other words, any competitive market situation is characterized both by a certain uncertainty as a result of the dynamism of the economic system, and by a significant control over production and prices as a result of the monopolization of markets. It is this uncertainty of the market, on the one hand, and the monopolization of the market, on the other, that give rise to economic profit received by individual entrepreneurs as additional, excess income.

There are several reasons for this additional income. First, one of the sources of economic profit is a kind of reward for the entrepreneur for taking on many uninsurable risks. Second, economic profit can be seen as a reward for innovation. And, finally, thirdly, the possession of monopoly power in the market can become a source of economic profit.

In general, it should be emphasized that the driving force behind economic development in most cases is precisely the innovative activity of entrepreneurs associated with foresight, originality of thinking, initiative, courage, the ability to take risks, etc. The result of all this for the entrepreneur is the receipt of economic profit, which stimulates the most efficient use and distribution of resources between alternative ways of their application.

Tasks. Tests.
1. The supply of factors of production is:
a) their quantity, which is available in the warehouse of the seller;
b) their number, which can be presented on the markets according to the existing
current prices.
2. Nominal income is:
a) the quantity of goods and services at nominal prices;
b) the amount of cash income.
3. Real income is:
a) income after taxes;
b) the quantity of goods and services that can be
purchase for the amount of nominal income;
c) actual profit.
4. What applies to the means of production:
a) buildings and structures;
b) vehicles;
c) cash;
d) tools.

Any item of final consumption of people is a commodity whose price is determined by the labor costs for its production, expressed in working time, the skill and talent of the worker. Thus, the price of each end-use product of people is primarily reduced to three components of costs: labor, capital and land. Any person receives his income from one of the listed factors of production belonging to him personally: either from his labor or from his capital or from his land.

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Lecture 5. Factors of production markets

and income generation

1. The structure of the classical market for production factors.

2. Labor market. Wages and employment.

3. Capital market. Interest rate and investment.

4. Land market and rental relations.

1. The structure of the classical market for factors of production

Markets for factors of production are a special kind of markets in the system of a market economy. In contrast to the markets for finished goods and services, where firms are sellers, and consumers of goods and services buyers, in the markets for factors of production, firms are buyers of labor, natural resources, land, capital in its various forms: cash, productive, loan or fictitious capital (capital presented in the form of securities).

The conditions that form demand, supply, equilibrium price in the markets for factors of production largely depend on the type of competition that dominates a particular market.

The problem of factors of production is interpreted differently by different economic schools.

Consider the classical approach. The initial premise is the division of primary economic resources into factors of production such as labor, land and capital.

Any consumer end product is a commodity whose price is determined labor costs on its production, expressed in working time, skill and talent of the worker. In the exchange of finished goods for money, labor or other products, in addition to paying the price of materials and the wages of workers, a certain amount of profit must be taken into account for the entrepreneur risking his capital in this business.

The value that workers add to the value of materials falls into two parts, one of which goes to their wages, and the other to pay the entrepreneur's profit on the capital he has advanced.

Return on capitalis not similar to wages and is established on a completely different basis. It is determined by the value of the capital employed in the business, and can be greater or less depending on the size of this capital and the efficiency of its use.

Ever since land has become private property, landowners have begun to demand rent even for the natural fruits of the land. A certain additional price is set for everything that is on earth, for its "natural products" and fossil resources. This part of payments to the landowner is ground rent , which is also included in the price of the finished product produced using the land.

Thus, the price of each end-use product of people is primarily reduced to three components of costs:labor, capital and land.

First conclusion from what has been said is that the pricing of factors of production, in particular primary resources such as labor, land and capital, is determined by the price of final consumer products produced with the help of these factors.

It is this feature that explains the derivative nature of firms' demand for factors of production, the dependence of prices for all types of resources on prices for consumer goods.

Second conclusion: the pricing of factors of production should be linked to the income of the owners who own these factors.

Any person receives his income from one of the listed factors of production that belong to him personally: either from his labor, or from his capital, or from his land.

The income received from labor is called "wages".

The income received from capital by a person who personally uses it in business is called "profit".

The income received from capital by a person who does not use it for business, but lends it to another person for productive use, is called"percent". It represents the remuneration paid by the borrower to the lender for the profit that he has the opportunity to extract with the help of borrowed capital. The profit belongs to the borrower, but part of it is paid to the lender for the capital provided in the loan.

Income in the form of loan interest is a derivative income paid out of the profit received from the application of the loan taken.

Income derived entirely from the land and appropriated by the landowner is called "rent."

Revenues based on the redistribution of taxes collected by the state are ultimately obtained from the same three primary factors of production. They are the result of the redistribution of wages, profits and rents, which come to employees in the form of salaries; the elderly - in the form of pensions; recipients of various rent payments, social payments and benefits.

The logic of the arguments relating to the question of the relationship between the incomes of various groups of society and prices in the markets for factors of production can also be traced through the movement of prices for consumer goods. Since the price of any of these commodities is reduced to one or another or to all three components of the primary factors of production (labor, land and capital), the price of the entire annual product of society must be reduced to the same three components. Its value should also be distributed in the corresponding three forms of primary and secondary income received through redistribution through the tax system. If society's incomes rise, then the demand for factors of production and their price will also rise. Conversely, a decline in these incomes will cause prices in factor markets to decline.

The relationships noted above between the price of consumer goods, as well as the income of society and the movement of prices in the markets for factors of production are not so simple and unilinear. In every society there is a common or average rate of both wages and profits for each of the various uses of labor and capital. This norm is governed by the general conditions of society, by the degree of its wealth or poverty, by its stagnation or decline, and by the special nature of this or that application of labor and capital. The same applies to the average rate of rent.

Consequently, the natural price of a commodity is the price not higher or lower than what is necessary to pay, in accordance with natural norms, the rent of land, wages and profits on capital spent for its production (extraction), processing and delivery to the market. The actual price may deviate from the natural price, and may coincide with it at the time of sale on the market. The market price is determined by the ratio between the quantity of the commodity actually brought to the market and the demand for it by those who are willing to pay its natural price, or the full value of rent, wages, and profits. Payment for the goods is necessary for the goods to be delivered to the market.

Demand for factors of production

In contrast to the demand for ordinary consumer goods for individual purposes, i.e. end-use products, the demand for factors of production has its own specifics. A feature, a specific feature of the demand for any factors of production is that it has a derivative, secondary character in comparison with the demand for final consumer goods. The derivative nature of the demand for factors of production is explained by the fact that the need for them arises only if they can be used to produce end consumer goods that are in demand, i.e. goods or services for ordinary consumer purposes.

The demand for any factor of production can rise or fall depending on whether the demand for consumer goods made with that factor rises or falls. Demand for factors of production is presented only by entrepreneurs, that is, that part of society that is able to organize and carry out the production of products and services necessary for final consumption. Entrepreneurs seek to discover revenue opportunities not seen by competitors. Factor markets provide entrepreneurs with information about prices, technical and economic characteristics of goods, the level of production costs, supply volumes, etc.

The organization of the production process requires many factors: labor, land, equipment, raw materials, energy. All of them, to a greater or lesser extent, can be complementary and interchangeable: living labor can be partially replaced by technology, and, conversely, natural raw materials can be replaced by artificial ones, etc. However, labor, technology, and raw materials are associated, complementary only in a single production process. Individually, each of them is useless. But ceteris paribus, a change in prices for one of these factors causes the imputation of the quantity attracted not only of this, but also of the factors of production associated with it. For example, higher wages and relatively low prices for machinery can cause a decrease in the demand for labor and an increase in demand for machines that replace labor, and vice versa.

Consequently, the demand for factors of production is an interdependent process, where the volume of each factor involved in production depends on the price level not only for each of them, but also for all other resources and factors associated with them. The market provides information about the price movement for each of them. Price is one of the most important conditions for changing the elasticity of demand for each factor of production. Demand is more elastic for those factors that, ceteris paribus, have a lower price. This allows for mutual substitution, the displacement of expensive factors of production, and the reduction of production costs. High market prices cause a decrease in demand and its switch to alternative factors of production that have relatively low prices.

The elasticity of demand for each specific factor of production can vary depending on:

- the level of income of the company and the demand for its products;

– possibilities of mutual substitution of resources used in production;

- availability of markets for interchangeable and complementary factors of production at affordable prices;

– striving for innovations, etc.

Supply of factors of production

In competitive markets, the prices of factors of production are formed under the influence of both supply and demand. The supply of factors of production is the quantity that can be represented on the market at the current prices.

In factor markets, demand generates supply in the same way as in markets for ordinary consumer goods. However, the markets for factors of production have significant features. Here, the proposal largely depends on the specifics of each specific factor of production as an economic benefit for the implementation of production activities in order to generate income. In general, the peculiarities of the supply are due to the rarity, limited economic resources, primarily such as land, labor, natural resources, raw materials and products of their processing. Limitedness, rarity of primary economic resources and production factors derived from them is relative. They are rare and limited in comparison with the need for production in them to produce the final goods needed at any given moment. If resources were not limited, they would be free as air, and the various needs of people would be completely satisfied once and for all. The need for markets for any goods would disappear, the economy would not be needed, and no one would think about its need. However, people tirelessly and with interest monitor the indicators of the amount of land suitable for use and the price of this use; the number of labor resources, the level of their employment and wages; quantity of raw materials extracted and prices in this area. Based on these and related indicators, dynamics are revealed, forecasts are made, the structure of production, and sometimes the economy as a whole, is changing. This means that the supply of factors of production is subject to the law of scarcity, limited resources. This is an important feature of all markets, in particular the supply market of any factor of production.

In the markets, it is found that the supply of each specific factor of production has a different elasticity. The root cause here is also the law of scarcity, resource scarcity, although other factors may also influence. So, for example, the supply of land is most often inelastic, because at any given moment its size is fixed, and there is no alternative resource that replaces land, it is a unique, non-reproducible economic good. Fossil resources of raw materials are also practically non-renewable in time, but their supply is more elastic if alternative, interchangeable, including artificial, types of raw materials and materials are found. The number of labor vacancies is also fixed at any given moment and changes rather slowly. But the elasticity of labor supply may depend on the specific economic situation, the realization of full employment opportunities at given incomes and wage levels.

2. Labor market. Salary and employment

Labor is the purposeful activity of man, with the help of which he transforms nature and adapts it to satisfy his needs.

"Any work, - notes A. Marshall, - has as its goal to produce some result." Although "some efforts a person makes for their own sake, as, for example, in games for their own pleasure." Such efforts are not considered as work.

In economics, labor as a factor of production refers to any mental and physical efforts made by people in the process of economic activity.

The time during which a person works is called a working day, or working time. The duration of working time is a changeable value, but it also has certain limits. Its maximum duration is determined by two factors: firstly, a person cannot work twenty-four hours a day, since time is needed for sleep, rest, eating, to restore the ability to work. Secondly, the limit of working time is determined by the requirements of a moral and social nature, because a person needs not only physical recuperation, but also the satisfaction of some spiritual needs. The actual duration of working time is influenced by such factors as the intensity of labor, the movement of the phases of the industrial cycle, and the level of unemployment. The working hours of employees are determined by agreements between employers and trade unions.

Speaking about the labor market, it is necessary to dwell on suchconcepts such as productivity and labor intensity.

Labor intensitycharacterizes the intensity of labor, which is determined by the degree of expenditure of physical and mental energy per unit of time. The intensity of labor increases with the acceleration of the conveyor, an increase in the number of simultaneously serviced equipment, and a decrease in the loss of working time. Under the conditions of the scientific and technological revolutionthe consumption of physical energy of the worker decreases, but the expenditure of mental and nervous energy increases, which is associated with complex automation and mechanization of production. A high level of labor intensity is equivalent to an increase in the working day.Labor productivityshows how much product is produced per unit of time. The progress of science and technology plays a decisive role in the growth of labor productivity. So, for example, the introduction at the beginning XX century of assembly lines has led to a sharp increase in labor productivity. The conveyor organization of production was based on the principle of a fractional division of labor, in which the worker performs monotonous operations from one of the movements. However, at a certain stage it became clear that the division of labor operations is not unlimited, so the conveyor was replaced by the use of machines with control devices.

This again gave a sharp jump in labor productivity, for example, at Ford plants, the time from cylinder casting to final production was reduced by almost 96 times (from 24 hours to 14.6 minutes). Later, flexible production systems appeared.

The scientific and technological revolution has come to changes in the nature of work. Labor has become more skilled, the time spent on professional training has increased, physical labor has become less and less important in the direct production process,it becomes much more complicated, since a person has to deal with complex machines and mechanisms, an employee must understand the essence of the technological process, be able to handle expensive complex equipment, and take the initiative.

Speaking about the labor market, one should highlight the concept work force . Under the labor force is understood the ability of a person to work, i.e. the totality of his physical and intellectual qualities used in the production of life's goods.

The bearer of these qualities is the worker, who is the main productive force, the primary factor in the wealth of society. The labor force acts both as a producer and as a consumer of society. As a producer, it participates in the production process and creates the material and spiritual benefits necessary for human life. As a consumer, he uses material and spiritual values to maintain his life and further develop his intellectual abilities.

Labor resources - this is the part of the country's population that has reached working age and has the necessary physical development and mental abilities to work in the national economy.

The number of labor resources characterizes the potential mass of living labor that society has at a given moment in time. In our country, the labor force includes:

Working-age population (men - 16-59 years old, women - 16-54 years old), with the exception of non-working disabled people of the 1st and 2nd groups, pensioners of preferential categories;
The population employed in the public sector is older and younger than working age.

So r the labor market is a system of economic mechanisms, norms and institutions that establish links between firms that demand labor and labor supply from the population; the sphere of contact between sellers and buyers of labor services, where those who want to work (employed and unemployed) and those who hire workers to produce goods and services confront each other.

The functions of the labor market are determined by the role of labor in the life of society, when labor is the most important source of income and welfare.

social function- consists in ensuring a normal level of income and well-being of people, a normal level of reproduction of the productive abilities of workers;

economic function- consists in the rational involvement, placement, regulation and use of labor;

Allocating function- is the allocation of labor based on demand and in accordance with it. This function assumes that the organization and functioning of the labor market should serve the rational distribution of the labor force in individual enterprises, industries and regions;

selective function- consists in the choice of labor force based on supply and demand, as well as the professional and qualification qualities of the labor force;

Stimulating function- promotes the development of competition between its participants, increasing interest in highly efficient work, improving skills and changing professions.

Classification of labor markets.

It is carried out according to a variety of criteria:

– according to the spatial sphere, one can distinguish between federal, republican, regional, regional, city and other labor markets.

- by time parameters - perspective, forecast and current market.

- according to the state of supply and demand - equilibrium (balanced), scarce (demand exceeds supply) and excess (supply exceeds demand).

- by social groups - markets of mainly physical labor (workers), mental labor (employees, teachers), creative labor (intelligentsia), peasant labor (farmers), etc.

The subjects of relations in the labor market are:

Partners of labor relations - the employer and the employee;

Intermediaries between employers and employees (authorities and representatives of the state, developing the basis for the legal regulation of employment relations, linking the demand and supply of labor at all levels, monitoring compliance with laws);

Representatives of the interests of employees and employers (public organizations - trade unions, associations and unions that protect the interests of each of the subjects of labor relations and eliminate the contradictions that arise in their relationship).

So, the labor market can be defined as a system of competitive relations between market participants (entrepreneurs, employees, the state) regarding the hiring and use of workers.

Elements of the labor market mechanismis the price, competition, demand and supply of labor. The price acts in the form of wages, demand - in the form of the needs of the industry, region, enterprise in the labor force, supply - in the form of the number and structure of available labor resources. Competition is a form of interaction between market entities that influences the demand, supply of labor and the level of prices (wages).

Labor supply- this is the amount of working time that the employee is willing to offer the employer at each specific level of wages. Like any commodity, the value of its supply increases as the price (wage) rises and decreases as the price falls, i.e. the law of supply operates. A feature of labor markets and, in particular, labor supply is that in many respects the worker himself determines how much time he would like to work, and how much - to take for an alternative type of occupation and recreation. This determines the duration of employment contracts in any sector of the economy, provided that the level of payment is satisfactory for the worker.

In general, labor supply in labor markets is formed under the influence of a combination of the following conditions:

– total population;

– number of active able-bodied population;

- number of hours worked per year;

-qualitative parameters of labor, its specialization, qualifications, productivity.

So, the supply of labor is free in nature: people themselves voluntarily choose between employment and unemployment, determine their profession, type of activity, and decide to change jobs.

The main factors that determine the behavior of employees in the labor market are: the amount of wages, working conditions (physical severity, intensity, shift, ecology), remoteness of work from the place of residence, prestige of work, commitment to the profession, degree of independence and responsibility, etc.

In addition, there are factors affecting the change in labor supply:

– demographic factors (birth rate, death rate, natural increase, age and sex structure)

- the level of economic activity of various demographic and ethnic groups of labor resources. The involvement of women in the provision of labor services has significantly increased the supply of labor in the labor market;

– retirement age: an earlier retirement reduces the supply of labor resources, and vice versa, a later retirement increases the supply of labor resources;

– immigration of the working population

- mobility in changing occupations, depending both on the level of professional and qualification training of employees, and on the possibility of their retraining;

–and others.

On the other hand, the employer is the one who forms the demand for labor in the labor market.

Demand for labor is formed by the employer based on the marginal productivity of labor and the labor price (wage rate) prevailing in the market. The demand for labor is inversely related to wages.

The behavior of the employer in the labor market has both an objective and a subjective basis. Objective characteristics in the activity of the employer are determined by the position of the entrepreneur, the conditions of his activity. The goal of an entrepreneur is to make a profit.

Subjective elements of the employer's behavior: reliability, loyalty, employee loyalty, special education, family ties, personal likes or dislikes, etc.

Factors of market demand for labor are:

- the magnitude of the demand for goods and services produced by workers, since the demand for any resource, including labor resources, is a derivative of the demand for goods produced by them;

- the level of prices for labor resources, i.e. wages;

- scientific and technological progress, which, on the one hand, creates the prerequisites for the release of part of the workers or imposes new requirements on them (in terms of their structure and quality), which is accompanied by a reduction in employment, and on the other hand, causes demand for workers of new professions and specialties and etc.

The labor market is a competitive market. It is characterized by perfect competition, implemented through the mechanism of flexible market prices, when neither individual employers nor individual employees can influence the market situation as a whole; equilibrium wage rates do not depend on the behavior of individual firms and groups of workers, but are determined by the general situation, i.e. the general interaction of all participants in the market process.

The labor market will strive for equilibrium, in which the aggregate demand for each category of labor force will coincide with the existing supply for it. This balance also depends on the state of the markets of other factors: land, raw materials, machinery, technology, consumer goods. An important point is also the presence of a competitive environment in the labor market itself, when, under the established equilibrium of supply and demand, there are no significant tendencies to increase or decrease differences in wages.

Equilibrium occurs when all entrepreneurs. Those who agree to pay the equilibrium wage find the necessary number of workers in the labor market, and their effective demand for labor is fully satisfied. Workers who are ready to offer labor at the equilibrium price are fully employed. Therefore, point E is said to determine the position of full employment.

The coordinating role in relation to the demand and supply of labor is played by his price ( wage) is the core of the labor market mechanism.

An important element of the labor market iswage, i.e. the price of a person's intellectual and physical abilities to create economic goods and services.

There are various definitions of wages.Wage- monetary remuneration, payment by the employer for the work performed by the employee. Labor relations are regulated by labor income.

Depending on who the employer is, or depending on the nature of the services provided, wages can be called differently: salary (civilian officials), monetary support (military personnel), official salary (heads of personnel), earnings (domestic servants), etc. .d.

Salary includes:

labor force reproduction costs (for personal consumption of an employee and his family);

compensation for increased costs of the quality of the labor force (complexity, conditions, intensity of work, etc.);

legislative social guarantees for an employee in terms of employment relations (work at night, overtime, in regions with a special climate, etc.).

The amount of wages is determined by a number of factors, of which five main ones stand out:

labor cost;
quantity and quality of labor;
growth of labor productivity of workers;
the qualifications of the worker and the nature of the work;
conditions in the labor market.

There are two types of wages: nominal and real.

Nominal wages -is the amount of money workers receive as wages for their work.Nominal wages(accrued) includes taxes not yet paid and does not take into account price developments. Therefore, it cannot be used to judge the actual level of consumption of an employee.

The actual level of consumption of economic goods for a specific period clearly reflects real wages.

Real wages -it is the value of the quantity of goods (including services) that workers purchase with their nominal wages, net of taxes (at a given level).It is defined:

the value of the most nominal salary;
the amount of taxes;
consumer price level.

There are two main forms of wages: hourly and piecework.Time wagedepends on the hours worked and the qualifications of the employee.This form of salary is used in the conditions of regulated, given technological regimes, therefore, in the era of the scientific and technological revolution, it became predominant.

piece wages(or piece) is a derivative of the time-based form and is set depending on the volume and quality of the products produced.

Each form of wages has its own wage systems (Table 1).

Table 1.

Basic forms and systems of wages

Forms of wages
Time		piecework
simple time-based	Time-bonus	Direct piecework	piece-progressive	Piecework premium	Chord, accord-premium
Wage system

Time wage formhas two main systems.simple time-basedis determined only by the hourly rate and the actual hours worked, depending on qualifications.Time-bonusthe system also implies a bonus for achieving any increased performance.

Piecework payrollhas four systems.

Direct piecework - remuneration is made at fixed rates and regardless of the degree of fulfillment of the production norm.

piece-progressive systemprovides for two levels of piece rates: regular (for products within the limits of output) and increased (for the production of products in excess of the norms).

Piecework-premium payment systemat fixed rates provides for bonuses for achieving certain labor indicators.

Lump paymentlabor (from lat. assogsyu - “agreement, agreement”) is a salary under an agreement that establishes the total amount of earnings for a certain amount, terms and quality of work performed, in addition, bonuses are provided for certain performance indicators.

So, wages are one of the most important and most massive form of income in any economy. In the system of market prices, wages are a particularly important category also because they reach about 3/4 of the national income of developed countries. The regulation of many processes in the economy is associated with changes in wages. For example, one of the indicators of the inflation rate is the gap between nominal and real wages. Nominal wages are the amount of cash payments, while real wages are determined depending on the level of prices for goods and services purchased at any given moment for the monetary amount of wages.

In most cases, differences in wages depend on the professionalism of the workers and the types of work performed. Differences in wages are determined by the quality of the functions performed, as well as by the fact that the work can be pleasant or unpleasant, difficult or simpler. The wage supplement increases her basic rate for work performed at night, in unfavorable or unhealthy conditions. Highly skilled labor is rewarded with higher wages, firstly, because such labor makes a greater contribution to profits. Second, the high salaries of skilled professionals offset the past investment of time, money and effort in education and training.

Significant differences in wages can take place in the absence of competition between purely professional groups of workers, for example, between steel workers and doctors, dancers and mathematicians, truck drivers and child caregivers, and so on. It is practically impossible for a representative of each of these categories of workers to move from one group to another, and, consequently, competition between these groups does not arise. The competitive environment arises either within each professional group, or in groups of interchangeable professions and specialties.

A special group consists of people with talent or unique abilities: musicians, scientists, grandmasters, statesmen, etc. Their wages include an element of economic rent, payment for the exclusivity of their natural talents.

In general, if there is a competitive environment in labor markets, then the level of wages for each occupational group is set under the influence of mutually balancing supply and demand for labor. But the real situation often differs from the ideal conditions of a fully competitive labor market. On the one hand, this is due to the policy of employers in the field of hiring workers and setting their wages, and on the other hand, due to monopoly tendencies in the field of supply of labor and its payment, generated by the actions of, for example, trade unions. As a result, the market equilibrium can be disturbed either by an increase in wages and an increase in unemployment, or by an increase in employment and inflation of nominally rising, but actually falling wages.

The economic conditions for a reasonable increase in real wages are a high proportion of natural resources per unit of work, if these resources are used rationally and efficiently, and the improvement of production methods through capital growth and improved technology, which contributes to an increase in labor efficiency and productivity. Under these conditions, in a competitive labor market, the level of wages will rise, shifting upward the equilibrium point of supply and demand for labor.

Disturbances in the balance of supply and demand occur most often as a result of the monopoly influence of trade unions, demanding: first, to increase wages, often without taking into account other economic conditions; secondly, to accelerate the replacement of labor by capital, without taking into account other economic conditions, which causes a relative decrease in the demand for labor; thirdly, to take measures that limit the supply of labor in the relevant industry.

Wages are included in production costs and cause an increase in commodity prices for manufactured products, which may result in a decrease in consumer demand. Rising commodity prices can also cause savings and capital accumulation to decline. But the most significant and undesirable consequence may be an increase in unemployment.

3. Capital market. Interest rate and investment. Features of the capital market and capital assets

The market of capital and capital assets is an integral part of the market for factors of production. Capital assets include: all types of buildings and structures, equipment and machines for industrial purposes, equipment and tools; raw materials and materials; energy and ideas; computer software.

As can be seen from this enumeration, in the modern economy, the boundaries of the concept of capital extend to physically tangible and intangible objects. The market for factors of production, the specifics of the laws of supply and demand operating here, set the price of any kind of capital assets. Their price is the income that they are able to bring as a result of use, productive use.

capital market where money is given and borrowed. Since money is borrowed mainly for the acquisition of capital goods, this market is called the capital market.

It should be noted that the term "capital" has many meanings: it can also be interpreted as a certain stock material goods, and as something that includes not only material objects, but also intangible elements, such as human abilities, education. Defining capital as a factor of production, economists identify capital with the means of production. A similar approach comes from the classics of political economy: A. Smith considered capital as accumulated labor, D. Ricardo considered what capital is the means of production. Capital consists of durable goods created by the economic system for the production of other goods. These goods include countless machine tools, roads, computers, hammers, trucks, rolling mills, buildings, and more.

Another aspect of the category of capital is related to its monetary form. For example, J. Robinson in In his work Capital Investment in Modern Economics, he writes that capital, when it is embodied in finance not yet invested, is a sum of money. Views on capital are diverse, but they all have one thing in common: capital is associated with the ability to generate income. Capital could be defined as investment resources used in the production of goods and services and their delivery to the consumer.

Following A. Smith, J.S. Mill and other economists, it is customary to distinguish between capital materialized in buildings and structures, machine tools, equipment, functioning in the production process for several years, servicing several production cycles. It is called fixed capital. Another type of capital, including raw materials, materials, energy resources, is completely spent in one production cycle, embodied in manufactured products. It is called working capital. Money spent on turnover capital, fully returned to the entrepreneur after the sale of products. Fixed capital costs are not may be reimbursed so quickly.

In the process of functioning, fixed capital is subject to physical and moral wear and tear.Physical deterioration is the process by which elements of fixed capital become physically unfit for further use in production. The physical depreciation of fixed capital is determined by many factors. First of all, this is the duration and intensity of the use of machinery and equipment, the features of production technologies where fixed capital is used, the impact of atmospheric conditions, the internal processes occurring in the material from which the means of labor are made. Between the degree of physical depreciation and the duration of the use of fixed capital, there isdirectly proportional relationship: the longer the operating time of machines and equipment, the greater the degree of their physical wear.

In addition to physical wear and tear, fixed capital also has the so-calledobsolescence,which is a process of depreciation of fixed capital due to the appearance of cheaper or more modern equipment. The obsolescence of fixed capital is connected mainly with the high rates of scientific and technological progress. There are two types of moral outrage: first, fixed capital can depreciate as similar equipment starts to be produced at lower costs and, therefore, becomes cheaper; secondly, as a result of scientific and technological progress, more modern, more advanced equipment appears. At present, the transition and a fundamentally new technology in industries that determine scientific and technological progress takes an average of three years. Morally obsolete equipment is economically inefficient, and, consequently, the products it produces are uncompetitive.

Obsolete equipment is updated in accordance with technical modernization programs, and this requires large capital outlays. In this regard, the share of investments allocated for renewal and technical modernization of production is growing. In the manufacturing industry of developed countries, the share of investments for these purposes is 60-80% of capital investments.

Reimbursement for physically worn out and obsolete equipment occurs at the expense of depreciation deductions (this is a part of the cost of fixed capital, which is annually included in the cost of manufactured products). The ratio of the amount of depreciation to the value of fixed capital, expressed as a percentage, is called the depreciation rate. The high rates of scientific and technological progress, the acceleration of the obsolescence of fixed capital lead to the fact that the state increases the rate of depreciation by law. Such activity of the State is called the policy of accelerated depreciation, it allows you to quickly write off the cost of equipment for manufactured products, get rid of obsolete equipment faster. And in the conditions of scientific and technological progress, a significant part of the funds to compensate for the obsolescence of fixed capital comes precisely from accelerated depreciation. It is intended not only to replace the retired fixed capital, but also to stimulate scientific and technological progress. Accelerated depreciation allows huge amounts of profits to be contributed to the sinking fund, which creates additional opportunities for expanding savings. In addition, profits allocated to the sinking fund are exempt from taxation.

In the process of reproduction, capital is in constant motion.

Depending on the rate of turnover, capital is divided into:

1) main capital- these are means of labor, i.e. factors of production in the form of factories, equipment, machines, etc., participating in the production process for a long time and transferring their value to the finished product in parts as they wear out;

working capital- these are objects of labor (raw materials, finished products) that participate in production once, are completely consumed and immediately transfer their value to the finished product;

Investment capitalis formed from two sources: own savings of enterprises (profit, depreciation) and borrowed savings (free cash of the population, other enterprises).

Only own (personal) savings can “turn” directly into investments. Other people's savings, in order to turn into investment capital, must pass through the financial market.

Investments - long-term capital investment in enterprises of various sectors of the economy;used to purchase means of production: equipment, machinery, buildings, etc. The costs of these elements of production pay off not immediately, but over many years. When investing, the firm decides whether the increase in profits resulting from the investment will be greater than the cost of production costs.

The laws of supply and demand interact in the capital market. Demand is influenced by market factors, primarily the price of means of production.

The law of demand expresses the inverse functional dependence of demand on price. The higher the price of the means of production, the lower the demand for them from the buyer.

Supply is influenced by various market factors. Among them, the price of the means of production plays an important role. The law of supply expresses the direct functional dependence of supply on price. The higher the price of the means of production, the higher the supply of them from sellers.

When listing the demand curves (B) and supply (8), the equilibrium price (C) is established (Fig. 2).

So, the capital market, like any other market, operates on the basis of the mechanisms of interaction between supply and demand; the result is the establishment of an equilibrium price.In the capital market, this balancing price islending rate.

The price of capital assets is the income that they can receive as a result of their application. Income corresponds to the price paid for the use of money for a certain period of time (usually a year) - interest.

Percent - this is a payment for the right to receive resources at one's disposal before funds are accumulated in order to buy these resources.

Interest as income on capital assets will be the higher, the higher the productivity of real economic goods represented by capital assets as factors of production.

Lending money is called lending. loan or credit (from lat. creditum - "loan"). Accordingly, those who lend money are called creditors , and those who borrow money are called borrowers.

In the capital market, there is a price that indicates how much you have to pay to rent money. Since both the price and quantity in this market are measured in the same units - money, relative values - percentages - are used to measure prices.

interest ratecalled the price that must be paid for the use of money for a certain period of time, expressed as a percentage. For example, a rate of 5% per year means that for the use of 1000 rubles during the year you need to pay 50 rubles.

In the capital market there are supply and demand , which determine the equilibrium rate of interest (price) and the amount of money rented.

One of the main features of the capital market is thatany firm and any consumer can act in this market both as a lender and as a borrower. First, all firms and consumers use this "resource" in their activities (and therefore may need it). Secondly, this "resource" does not require production (therefore, any firm or consumer can have money, regardless of the type of its activity).

Complex production processes now or in the future require the accumulation of funds, which, as they are converted into real capital, will be highly productive, and therefore will bring higher income in the future. It is for this purpose that capital is accumulated and invested. The evaluation of profitability is carried out on the basis of the net productivity of capital, calculated, firstly, after all payments from profits, and, secondly, in comparison with the costs incurred. An effective investment project is a project, the annual income from which is not lower than the market rate of interest for any other capital asset, including the bank interest rate.

discount rate, or refinancing rate,- this is the percentage at which the Central Bank of the Russian Federation (or another country) of the country provides a loan to commercial banks.

The interest rate is determined in the money market and depends on the ratio of money demand and money supply. Distinguish between real and nominal interest rates.

Nominal interest rateis the monetary interest rate.Real interest rateis the inflation-adjusted interest rate, i.e. expressed in constant prices.

4. Land market and rent relations

The third factor of production is land. One of the important characteristics of land is its limited area. A person is not able to change its size at will, the earth cannot be “produced”. The use of a certain piece of land is also the initial condition of everything that a person can do.

It must be remembered that the term "land" is used in a broad sense of the word. It covers all the utilities that are given by nature in a certain amount and over the supply of which man has no power, whether it be the land itself, water resources or minerals.

Certain areas of the earth's surface contribute to some specific human production activity: for example, the seas and rivers are used for fishing;areas rich in minerals are necessary for the mining industry; some part of the land is used for construction (however, in this case, the choice is made not by nature, but by search) But still, speaking of land, first of all, we mean its use in agriculture. For a farmer, a piece of land serves as a vehicle for growing certain crops. The soil must have fertility, which is determined by its mechanical and chemical properties. In terms of mechanical properties, it should be quite soft, at the same time it should not let water through too freely, but very dense, clay soil is not suitable for growing plants. According to the chemical composition, the earth must contain inorganic elements. In a form in which they are quite easily absorbed by plants. A person is able, within certain limits, to change the state of the soil, using mechanical processing, making organic and chemical fertilizers. Thus, the properties of the earth can be divided into data initially, that is, natural and artificially created. However, it is the first group of properties, which includes the location of the site, climatic conditions, that is the main one,for it is precisely these properties which give special significance to the ownership of land and determine the specific character of the income of landowners.

Land is a resource that is not produced, but exists as a natural object that is quantitatively limited.

Mechanism of the land market.

Relations concerning the pricing and distribution of income from the use of land, its fossil resources and real estate are called "rental".

In a narrower sense, "economic rent" refers to the price of land paid by the tenant to its owner for the possibility of productive use of the land and profit. The rent is part of this profit and is paid by way of its distribution in favor of the owner of the land. Ownership of land with its natural resources and real estate in the form of built structures provides a basis for obtaining net, that is, absolute, rent, as well as income in the form of rent. Rent often includes rent if the land is leased for economic use with facilities built on it. The rent is an independent form of payment, in which only real estate is used, i.e. structures, buildings, etc.

ground rent - part of the profit arising from the use of a non-reproducible production factor - land. There are two forms of land rent - differential and absolute.

Differential rent exists in two forms:differential rent I and differential rent II . Conditions for the emergencedifferential rent I are differences in the fertility of individual plots of land and differences in the location of plots of land in relation to the market.Differential rent II associated with additional capital investments in land.

Differential rent arose as a result of the scarcity of land; therefore, the price of agricultural production is determined by the conditions of production not on the average and best plots, but on the worst ones, because. a product obtained only from the best and average plots is insufficient to cover the public demand.

As a result, an additional surplus value is formed - the difference between the price of production in the worst areas (the social price of production) and the individual price of production in the middle and best areas. Differential rent II arises on the basis of intensive farming.

Absolute land rent is associated with the presence of private ownership of land. The condition for absolute rent is a low organic composition of capital in agriculture.

The main conditions for the formation of land rent:

limited fertile land;
monopoly on land as an object of ownership or as an object of management;
low capital structure constraint.

In a market economy, land acquires a commodity form: it is bought and sold. Owning the land, the owner constantly receives income in the form of rent.

The price of land depends on:

land rent,which can be obtained by the landowner, becoming the owner of this site;
lending interest rates.

Thus, the price of land (C 3 ) is capitalized land rent.

Total demand for landis made up of:

– agricultural demand for land;

– demand for land as a place for housing construction;

– industrial demand for land (the location of enterprises of various (especially extractive) industries);

– commercial demand for land (location of recreational and other business enterprises, etc.)

Land offer

Supply is affected by the inelasticity of demand for food. This means that even a slight reduction in the usual volume of supply can cause a strong increase in food prices. Conversely, an increase in supply (for example, in a harvest year) can lead to a significant drop in prices for agricultural products.

Features of the land offer:

1. the limited size of land, both at the macro level (territorial limitations of countries) and at the micro level (the possibilities for expanding farm land are absolutely limited both in the short and long term);

2. the inelasticity of the land supply, follows from its limited nature and means the fixed nature of the land supply;

3. immobility. Land cannot be transferred from one enterprise to another, overflowed from one branch to another;

4. irreproducibility. Land is a non-reproducible factor of production. With the loss of one or another part of the land wealth, it is not possible to recreate this wealth artificially. Experts believe that 90% of natural resources are irreproducible

Factors affecting land supply:

1. fertility - depends on the quality of the soil, climate, the nature of the technology and equipment used, the labor skills and production experience of those who work on the land and affect the volume of output (production). Allocate:

a. natural fertility is the natural resources of the soil for production;

b. artificial fertility is an additional component of the fertility of the earth, resulting from the actions of people by default;

c. economic fertility is the degree of realization of natural fertility and the formation of artificial fertility on its basis in the conditions of the current stage of the technological development of society. It depends on the level of management.

2. location - remoteness of land from processing centers and markets for agricultural land, and distance from the city center or industrial center for non-agricultural land. Remoteness affects the amount of transport costs.

So, the supply of land does not change with a decrease or increase in land prices, the owners of this factor of production offer for sale a constant (fixed) number of land plots.

If you plot the land supply curve on a graph, it will look like an absolutely vertical line (Fig. 1). It is possible to increase the productivity of land, to improve its quality, it is possible to increase the market level of rent as payment for land, or to reduce this level to a minimum, but the quality of the aggregate supply of this factor at each fixed point in time cannot be increased. Net economic rent is determined by the ratio of supply and demand for land in the markets.

Rent, price of land, R

0 Q , amount of land

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	The labor market and wages. Hence: each person directly or indirectly involved in production receives income in accordance with the contribution to the creation of the product of the labor resource belonging to him, the entrepreneurial abilities of the land capital. The labor market and wages. The sphere of labor covers both the labor market and the direct use of labor resources.
11191.		STUDY OF FACTORS OF FORMATION OF PERSONAL HELPLESS IN CHILDREN	107.18KB
	Traumatic events as a factor in the formation of personal helplessness in children. And this, in turn, contributes to the development of depressive states and the formation of a general pessimistic attitude, which leads to the formation of such a stable personal formation as personal helplessness. In domestic psychology, phenomena close to helplessness in nature were studied, such as stress, frustration, failure ...
16033.		Patterns of the formation of power and kinematic factors necessary for the vehicle to overcome profile obstacles	927.96KB
	The level of cross-sectional cross-country ability of operated off-road vehicles, with the exception of some special vehicles created according to the specific requirements of the military department, is provided only by their design parameters - axle layouts on the base
16362.		-efficiency. One of the important stages was the understanding of the need to expand the set of production factors	86.95KB
	CEMI RAS Moscow Estimates of the economic efficiency of the transition to an achievable potential The methodology for constructing a production potential model is constantly being improved, reflecting the development of production theory and the theory of X-efficiency. Efficiency factors include, for example, the level of staff motivation, its qualifications, and the cost of training. Identification of the degree of influence of efficiency factors is one of the main tasks of the stochastic frontier methodology, which leads to the well-known model of the stochastic frontier ...
21231.		Identification of the factors that form the value of banks and development of practical recommendations for management and shareholders on their basis	359.45KB
	Financial institutions play a huge role in the modern world. Financial institutions determine the harmonious and progressive development of society and the economy, contributing to the accumulation and redistribution of free funds, the creation of an effective system of mutual settlements and risk management.
16472.		The impact of international trade on domestic markets	21.94KB
	The works of Western researchers show that in the domestic markets of exported goods, even those characterized by low concentration, competition between manufacturers is in most cases imperfect. This is also true for domestic markets for exported goods. Results of a positive analysis of the impact of foreign trade policy on the characteristics of domestic Russian markets for individual goods I. The impact of trade on short-term market characteristics Results of an analysis of the impact of international trade on domestic prices of individual ...
13420.		General Equilibrium: Markets for Products and Resources	6.74KB
	Until now, the analysis of equilibrium in the market of one product has been carried out. The equilibrium position was determined by the demand and supply of this product, while the situation on the market of other goods directly or indirectly related to this was not taken into account. An imbalance in the market for one product can lead to an imbalance in other markets and also cause a response to the market for this product. There are two approaches to the problem of economic equilibrium.
11695.		STRATEGIES FOR PENETRATION OF OIL COMPANIES IN FOREIGN MARKETS	1.12MB
	The world oil market is a strategic commodity market due to the leading position of oil in the world's fuel and energy balance, the significant scale of international hydrocarbon trade and the desire of states for energy security. In the context of increased competition and globalization, the world oil market creates the need for a consistent formation of a competitive strategy.3 The specifics of competitive strategies The specifics of strategic planning in oil companies lies in the fact that the external environment is presented ...

Factor markets and income generation. Factor Markets and the Generation of Factor Income

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