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The Markets for Land and Capital

Module. Micro: Econ:. 34. 70. The Markets for Land and Capital. KRUGMAN'S MICROECONOMICS for AP*. Margaret Ray and David Anderson. What you will learn in this Module :. How to determine demand and supply in the markets for land and capital.

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The Markets for Land and Capital

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  1. Module Micro: Econ: 34 70 The Markets for Land and Capital • KRUGMAN'S • MICROECONOMICS for AP* Margaret Ray and David Anderson

  2. What you will learnin thisModule: • How to determine demand and supply in the markets for land and capital. • How to find equilibrium in the capital and land markets. • How the demand for factors leads to the marginal productivity theory of income distribution.

  3. Demand in the Markets for Capital and Land • The price (marginal cost) of capital or land is the rental rate (R) • Firms hire capital or land up to the point where VMP = R

  4. Supply in the Markets for Capital and Land • The supply curve for capital and land is upward sloping. • The supply of land is inelastic (very steep)

  5. Equilibrium in the Markets for Capital and Land • Supply and demand in factor markets work very much like supply and demand in product markets.

  6. Marginal Productivity Theory • Labor receives about 70% of total factor income. • VMPL > VMPcapitalor land

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