Factor Prices
Distribution of national income is determined by factor payments(factor prices).Factor payments include rent, wage, interest and profit. The prices for factor of production depends upon demand and supply of that particular factor of production. We assumed that the factor of production in economy are fixed and hence the factor supply curve is vertical.Equilibrium of factor payments is determined by the intersection of downward-sloping factor demand curve and vertical supply curve. To understand the optimal factor payments we would determine through their respective markets i.e. the market clearing prices of the factors of production. There are three major factor of production Land, Labor, Capital.
To understand the optimal factor payments we would determine through their respective markets i.e. the market clearing prices of the factors of production. There are three major factor of production Land, Labor, Capital.
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