The market of production factors and the formation of factor income. Factor Markets and Factor Income Formation Factor Market and Income Generation

Topic 1 Markets of factors of production and the formation of factor income

A feature of the land as an economic resource is its limitedness. Unlike capital, land is motionless.
The factors that influence the supply of land are 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. Naturally, the amount of good land around a particular large city or even an individual farm is doubly limited: both in quality and quantity.
Fertility, for example, depends on the quality of the soil, the climate, the nature of the machinery used, the skills and experience of those who work the land, etc.
The fixed nature of the supply of land means that the supply curve is completely inelastic. If you plot the number of acres of land on the abscissa and the price of an acre of land on the ordinate, the land supply curve will represent a line parallel to the ordinate.
The demand for land is heterogeneous.
It includes two main elements - agricultural and non-agricultural demand:
D \u003d D cx + D nesx,
where D is the aggregate demand;

Where R is the annual rent;
i - market interest rate.

Profit as an entrepreneur's factor income

First of all, the amounts that go "to the side" are deducted from the gross profit. This includes rent for the use of someone else's land or buildings (otherwise owned), as well as interest on borrowed funds. In addition, the company pays taxes to the budget of the state and local authorities, invests in charitable and other funds. The rest of the funds forms net profit. It is used for the production and social needs of the enterprise, including for the accumulation (expansion of production), for environmental protection, training and retraining of personnel, the social needs of the employees of the enterprise and other purposes.

With the current distribution of gross profit, with an increase in its size, the property of entrepreneurs and the state increases, and it also becomes possible to increase income that goes into personal consumption not only of employees of each company, but also of other members of society who receive public goods and various kinds of benefits from the state. and enterprises.

Fundamentals of the theory of functional distribution and the formation of factor income
The costs incurred by the firm in acquiring resources appear in general terms as the income of their owners (salary, interest, rent, profit). The income of resource owners is determined by the marginal productivity of resources and the resulting price level for them. Each factor of production is paid according to its marginal profitability.
When deciding how much to produce, every firm must think in terms of limiting values. She must establish whether the costs caused by the use of an additional unit of labor exceed the amount of income received as a result of this use. For example, the cost of using an additional unit of labor is wages.
The income from the use of an additional unit of labor is the increase in the total income of the firm as a result of an increase in the volume of products for sale.

The marginal profitability of any factor is equal to the increase in the total income of the firm as a result of using an additional unit of this factor. Thus, the marginal profitability of labor (MRPL) is equal to the marginal revenue of the firm (MR) multiplied by the value of the marginal product of labor (MPL).

The marginal revenue of a firm is the increase in revenue resulting from the additional production of one unit of output.

For example, if the marginal income is 5 tenge per unit of output and the marginal product of labor is two (2) units, then the marginal profitability of labor is 10 tenge (5x2) per unit of labor input.
The value of the marginal profitability of labor shows what the attraction of one additional employee brings. However, hiring an employee simultaneously increases costs by the amount of the employee's wages.
Consequently, the net effect of hiring an additional employee, affecting the volume of the firm's profits, is equal to the marginal profitability minus the increase in the payroll.

A perfectly competitive firm maximizes profits by setting the number of employees at a level where wages equal the marginal profitability of labor.

Dividing both sides of equation 1 by the output price:

If we consider the three main factors of production - labor, capital and land, then the firm maximizes profit by increasing the use of each of the factors to the point at which the marginal profitability is equal to the cost of involving this factor.

If a firm is trying to maximize profits, then the following three conditions must be met:
MPL x MR \u003d W (2)
MPK x MR \u003d P k (3)
MPT x MR \u003d P t (4),

If the market of perfect competition is considered, then MR is equal to the output price and the product on the left side of each of the equations is equal to the marginal value of the product of each of the three factors.

Proceeding in a similar way with equations (3) and (4), we will see that all three equations can be reduced to the same form:

If the firm maximizes costs, then an increase in output by one unit should entail an increase in costs by an amount that does not depend on the application of which kind of factors it is decided to expand.

To minimize production costs for any volume of output, the ratio of the costs of using a factor to the value of its marginal product should be the same for all factors. This ratio is also equal to the value of the marginal cost of the firm, which in turn must be at a level equal to the marginal revenue in order to maximize the mass of profits.

Wages as the price of labor

Labor is a factor of production, and wages are the cost of using the worker's labor. Distinguish between nominal and real wages. The nominal wage is called the amount of money received by the employee, real - the totality of goods and services that can be purchased with this money, taking into account their purchasing power.
In conditions of perfect competition, the price of labor is formed like the price of any other commodity. This means that all employees receive equal wages, which do not depend on which firm they work in, and is perceived by the firm as a predetermined value. Therefore, for an individual firm, the labor supply is absolutely elastic. The level of wages itself is maximum in conditions of perfect competition - the worker, according to the theory of marginal productivity, receives the full product of labor: MRC \u003d w Therefore, the firm's marginal labor costs are equal to the wages. In conditions when the level of wages is not related to the behavior of the firm, only the number of hired workers depends on the entrepreneur.

MRP \u003d\u003d MR x MP,

Thus, the condition for maximizing profit is the equality of the marginal product to real wages. We deduced that

MR x MP \u003d w.

Land rent - landowner's factor income

Land is the main factor of production in agriculture.
The peculiarity of the land as an economic resource is its limitedness. Unlike capital, land is motionless.
The factors that influence the supply of land are 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. Naturally, the amount of good land around a particular large city or even an individual farm is doubly limited: both in quality and quantity.
Fertility, for example, depends on the quality of the soil, the climate, the nature of the machinery used, the skills and experience of those who work the land, etc.
The fixed nature of the supply of land means that the supply curve is completely inelastic. If you plot the number of acres of land on the abscissa and the price of an acre of land on the ordinate, the land supply curve will represent a line parallel to the ordinate.
This means that the supply of land cannot be increased even in the face of a significant increase in land prices.
The demand for land is heterogeneous.
It includes two main elements - agricultural and non-agricultural demand:
D \u003d D cx + D nesx,
where D is the aggregate demand;
D cx - agricultural demand;
D nesx - non-agricultural demand.

An economic rent is a payment for a resource whose supply is strictly limited. Land rent is a special case of economic rent. The word "rent" in translation from French (French rente from Latin reddita) means "given". The etymology of this word thus reproduces the fact of transferring part of the production (or income) produced by the farmer to the owner of the land. 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, and rent acts as a flow.
The price of land is determined by capitalizing the rent. Suppose that a piece of land brings in annually R $ annuity. What might be the value of a piece of land? To answer this question is to determine the opportunity cost for the land owner. The price of the land should represent the amount of money that, if deposited in the bank, the former owner of the land would receive a similar percentage on the capital invested. Therefore, the price of land is the present value of the future land rent:

The price of land is a perpetual investment of capital. therefore

Where R is the annual rent;
i - market interest rate.

Profit as an entrepreneur's factor income

Profit is the income of the firm. The entrepreneur is more interested in the mass of profit - the gross profit received from the sale of all goods.
When calculating the gross (total, total) profit, first of all, the amount of sales is determined (cash income from the sale of all goods produced for a certain period, say, for a year). This amount can be calculated by multiplying the average price for a product by the total amount of goods sold (TR \u003d P x Q).
The mass of gross profit PF is the difference between the sum of sales (TR) and the total cost of production (TC): PF \u003d TR - TC.
Usually, the rate of return is understood as the annual rate of return: the ratio of the profit received for the year to the total advanced capital.
Capital owners naturally have a vested interest in increasing their wealth by raising the rate of return.
The entrepreneur seeks to use all the factors that increase the rate of return. First of all, these include the production factors subject to the businessman (scheme No. 1).

The value of the rate of profit is determined by the main economic factor - the size of the mass of profit. Anything that multiplies this mass directly affects the degree of profitability of the business.
Profitability also depends on the structure of the funds advanced for production, namely, on the proportion of labor costs for workers. Suppose two enterprises use the same advanced capital. But on the first of them, relatively more funds were spent on hiring labor. Then it is here - all other things being equal - that more profit will be created, and therefore the rate of profit will be higher.
The annual rate of return is affected by the rate of turnover of funds spent on production. When this speed increases, the money spent by him, including the money used for wages, is returned to the entrepreneur faster. In this case, with the same total amount of capital, the size of production increases, profit increases, and as a result, profitability increases.
The increase in the rate of return is facilitated by savings in the cost of means of production. Savings are achieved through the introduction of advanced technology, technology and labor organization, by increasing the number of work shifts per day, etc. As a result, the cost of production is reduced and, accordingly, the profit increases.
Finally, the rate of return is influenced by economies of scale. In practice, there is a tendency that expresses the advantages of large-scale production over small-scale.
Profit distribution is shown schematically in diagram 2.

First of all, the amounts that go "to the side" are deducted from the gross profit. This includes rent for the use of someone else's land or buildings (otherwise owned), as well as interest on borrowed funds. In addition, the company pays taxes to the budget of the state and local authorities, invests in charitable and other funds. The rest of the funds forms net profit. It is used for the production and social needs of the enterprise, including for the accumulation (expansion of production), for environmental protection, training and retraining of personnel, the social needs of the employees of the enterprise and other purposes.
Finally, from the net profit, the businessman receives the entrepreneurial income due to him personally. In the conditions of a joint-stock company, the part of the profit intended as personal income is distributed among all shareholders who have contributed to the joint capital.
With the current distribution of gross profit, with an increase in its size, the property of entrepreneurs and the state increases, and it also becomes possible to increase income that goes into personal consumption not only of employees of each company, but also of other members of society who receive public goods and various kinds of benefits from the state. and enterprises.

The marginal profitability of any factor is equal to the increase in the total income of the firm as a result of the use of an additional unit of this factor. Thus, the marginal profitability of labor (MRPL) is equal to the marginal revenue of the firm (MR) multiplied by the value of the marginal product of labor (MPL).

The marginal revenue of a firm is the increase in revenue resulting from the additional production of one unit of output.
The marginal product of labor is the increase in output as a result of the use of an additional unit of labor.
For example, if the marginal income is 5 tenge per unit of output and the marginal product of labor is two (2) units, then the marginal profitability of labor is 10 tenge (5x2) per unit of labor input.
The value of the marginal profitability of labor shows what the attraction of one additional employee brings. However, hiring an employee simultaneously increases costs by the amount of the employee's wages.
Consequently, the net effect of hiring an additional employee, affecting the volume of the firm's profits, is equal to the marginal profitability minus the increase in the payroll.
The optimal hiring rule for the firm is to expand employment as long as the marginal profitability of labor is higher than the wage level; reduce the number of employees as soon as marginal profitability falls below the wage level.
Thus, the number of employees is optimal if the condition is met:
Salary \u003d marginal profitability of labor: W \u003d MRPL (equation 1).
A perfectly competitive firm maximizes profits by setting the number of employees at a level where wages equal the marginal profitability of labor.
The principle of the formation of demand for the factor of labor in perfect competition is that the marginal profitability of labor is equal to the value of the marginal product of labor multiplied by the price of output.
Dividing both sides of equation 1 by the output price:

This equation suggests that in perfect competition, the firm will maximize profit by choosing the number of employees at a level at which the marginal product of labor is equal to real wages, that is, nominal wages divided by the output price. The optimal scale of employment increases with the decline in real wages and falls when the real wages rises.
To maximize profit, the volume of use of each resource must be adjusted so that the value of the marginal profitability of this factor is equal to the cost of using its additional unit.
If we consider the three main factors of production - labor, capital and land, then the firm maximizes profit by increasing the use of each of the factors to the point at which the marginal profitability is equal to the cost of involving this factor.
Let us denote the wage rate by the symbol W, the value of the rent estimate of capital P k and the rent estimate of the land - P t (teppa - land in Latin).
If a firm is trying to maximize profits, then the following three conditions must be met:
MPL x MR \u003d W (2)
MPK x MR \u003d P k (3)
MPT x MR \u003d P t (4),
where MPL, MPK and MPT are the marginal product values, respectively, of labor, capital and land.
If the market of perfect competition is considered, then MR is equal to the output price and the product on the left side of each of the equations is equal to the marginal value of the product of each of the three factors.
Dividing both sides of equation (2) by MR, and then by W, we get:

Proceeding in a similar way with equations (3) and (4), we will see that all three equations can be reduced to the same form:

Equation (6) is the basic rule by which the firm is guided when choosing the amount of costs of factors.
If the firm maximizes costs, then an increase in output by one unit should entail an increase in costs by an amount that does not depend on the application of which kind of factors it is decided to expand.
But the cost of increasing output by one unit is equal to the marginal cost of the MC firm.
Turning the fractions upside down (equation 6) and introducing this equation into the result obtained, we obtain the basic rule for choosing the volumes of all factors:

Thus, the results obtained can be formulated as follows:
To minimize production costs for any volume of output, the ratio of the costs of using a factor to the value of its marginal product should be the same for all factors. This ratio is also equal to the value of the marginal cost of the firm, which in turn must be at a level equal to the marginal revenue in order to maximize the mass of profits.

Wages as the price of labor

Labor is a factor of production, and wages are the cost of using the worker's labor. Distinguish between nominal and real wages. The nominal wage is called the amount of money received by the employee, real - the totality of goods and services that can be purchased with this money, taking into account their purchasing power.
In conditions of perfect competition, the price of labor is formed like the price of any other commodity. This means that all employees receive equal wages, which do not depend on which firm they work in, and is perceived by the firm as a predetermined value. Therefore, for an individual firm, the labor supply is absolutely elastic. The level of wages itself is maximum in conditions of perfect competition - the worker, according to the theory of marginal productivity, receives the full product of labor: MRC \u003d w. Therefore, the firm's marginal labor costs are equal to the wages. In conditions when the level of wages is not related to the behavior of the firm, only the number of hired workers depends on the entrepreneur.
In conditions of perfect competition, marginal revenue is equal to the output price: MR \u003d P. If a firm maximizes profits, then it hires workers until the marginal profitability of labor equals wages (MRP \u003d w), i.e., until the marginal revenue from the use of a factor (labor) equals costs, associated with its purchase (i.e., salary). Substituting into the formula
MRP \u003d\u003d MR x MP,

Instead of MRP, wage w and instead of MR - price P, we get:

Where w is the nominal wage;
Р - issue price; - real wages.
Thus, the condition for maximizing profit is the equality of the marginal product to real wages. We deduced that

MR x MP \u003d w.

Topic 2 National economy as a system

National economy as a system

On a national scale, the economy is characterized as a macrosystem. Its main elements are:
firstly, aggregate production is the total set of enterprises that create all the variety of goods;
secondly, the aggregate social product - the entire amount of goods (products and services) produced in the country for a certain period;
third, aggregate needs - the total sum of the needs of all members of society.
These elements are presented in the form of three pie charts.

Now we have to find out how all the elements of the macrostructure are related to each other.
First of all, there is a direct connection between them. It consists in the fact that social production acts in order to create an aggregate social product that satisfies all the needs of society.
However, there is also a feedback. It manifests itself in the fact that the increased aggregate needs affect the change in the structure of the aggregate social product, which makes it possible to carry out structural changes in social production.
Elucidation of these direct and inverse relationships reveals the main goal of macroeconomic regulation. Its purpose is to constantly maintain economic proportionality. These are two interrelated relationships.
For the normal supply of society with the material conditions of its life, it is necessary to ensure the equality of volumes:

At the same time, it is necessary to ensure the compliance of structures with each other:

Consequently, we are talking about an objective economic law of proportional development of macroeconomics. This law reflects the condition for the existence of a normal national economic system, independent of the will and desire of people, namely the need to constantly maintain the correspondence between the volumes and structure of the aggregate values \u200b\u200bof production, social product and needs.
Violations of the law of proportional development of macroeconomics are manifested in the types of macroeconomic imbalance known to us: a) structural crises (inconsistency between the elemental composition of production and total needs); b) economic crises of overproduction (excess of the volume of all production over the total volume of solvent needs); c) mass unemployment (a decrease in the demand for labor in comparison with its supply in the labor market); d) inflation (excess of money supply over their demand).
In a commodity-market economy, the exchange value of products serves as a specific form of interconnection of economic proportions. Therefore, in a market economy, the law of proportional development of the national economy appears in a specific form - as the law of equilibrium between macroeconomic demand and macroeconomic supply.
Macroeconomic demand is the amount of money that members of society are willing to spend on the purchase of goods and services to satisfy all needs. The volume of aggregate demand depends on the following factors:

Macroeconomic supply is the sum of the prices of goods and services that their producers and resellers sell to all buyers. The volume of the aggregate supply is determined by the following factors:

There are certain relationships between macroeconomic demand and macroeconomic supply. They act as end-to-end interdependencies. Thus, the structure of aggregate demand (the set of all paid needs) affects the composition of the aggregate supply (the set of all goods and services sold), and thereby affects the structure of national production (the sum of all industries and types of economic activity ultimately needed to meet effective demand society). The feedback also works: the structure of the entire production largely determines the structure of the aggregate supply and through the market predetermines the whole variety of consumer demand.
Objects of regulation on the scale of the entire market economy can be graphically displayed in the form of two pie charts.

The “law of the market” ensures the equality of supply and demand (which means that economic crises are impossible), the balance of savings and investments, and full employment of the labor force (unemployment is excluded). This is how - purely theoretically, speculatively - the neoclassicists solved the problem of achieving a stable (proportional) development of the market economy.

Characteristics of macroeconomic indicators

To measure the results of the functioning of the national economy in theory and economic practice, various macroeconomic indicators are used.
A number of such indicators are intended to assess the value of the total volume of national production. These include gross social product (GPP), social final product (CPP), net social product (NPP), net national product (NPP), gross domestic product (GDP), national income (ND), personal income (LD) , intermediate product (PP)
The relationship between various macroeconomic indicators can be represented as follows:
VOP-PP \u003d CPC; KOP-A \u003d CHOP \u003d ND \u003d FN + FP + CHE
In economic theory and statistics of foreign countries, indicators calculated on the basis of the system of national accounts are used to characterize the final results of annual production. The standard system of national accounts, developed by the UN Statistical Commission, has been used in world practice since 1953. At present, national accounts are compiled in more than 100 countries around the world. In Kazakhstan, the national accounting system was introduced in 1993.
When calculating macroeconomic indicators based on the SNA, no distinction is made between tangible and intangible production. Therefore, they take into account all paid goods and services. The only types of production not included in the SNA are the production of goods and services by households for domestic consumption and the production of an intermediate product consumed within the business area.
The following macroeconomic indicators are calculated on the basis of the SNA:
Gross national product representing the market value of all final goods produced in the country during the year. It is close in its economic meaning to the CPC indicator, but exceeds it by the cost of services of non-material production.
Gross domestic product. This indicator is a kind of modification of GNP, but unlike the latter, it covers the results of activities in the territory of a given country of all economic entities, regardless of their nationality. The distinction between GNP and GDP is twofold. On the one hand, when calculating GDP, the amount of income from the use of the resources of a given country abroad (wages, interest, dividends, etc.) is deducted from GNP. On the other hand, when calculating GDP, similar income of foreigners received in a given country is added to GNP ... For example, dividends received by foreign investors are recorded in the GNP of the country of their permanent residence and in the GDP of the country whose corporate shares are acquired by foreigners.
Net national product is the amount of final products and services remaining for consumption after the replacement of decommissioned equipment. It is less than GNP by the amount of depreciation deductions.
National income characterizes the amount of income of all suppliers of productive resources, with the help of which the NNP is created. The only component of NNP that does not reflect the current contribution of economic resources is indirect business taxes. Therefore, the value of the latter when calculating ND is deducted from the monetary volume of the NNP.
Personal income shows how much money is received for the personal consumption of the population, and as such reflects the redistributive processes in the movement of personal income. When calculating personal income, taxes on corporate profits, the volume of their retained earnings and the amount of social insurance contributions are deducted from ND, but transfer payments to the population (pensions, scholarships, benefits) are added.
To characterize the income that the population can spend at its discretion, an indicator such as disposable income is used. To calculate it, the total amount of taxes paid by the population is deducted from the LD.
To measure the final results of a country's development over the entire history of its existence, an indicator such as national wealth (NB) is used. NB is the aggregate of material wealth that has been accumulated in the country at a given point in time. NB is replenished and updated annually due to the manufactured product. At the same time, it can also decrease in certain periods of time if the retiring elements of the NB are less than their increase. The constituent elements of NB include the means of production available in society, functioning both in material and spiritual production, property of the population, material and cultural values \u200b\u200bthat are in the public domain (museum exhibits, all subsoil, forests and water bodies), as well as intangible spiritual values \u200b\u200b( human capital, achievements of scientific and technical thought, information resources, spiritual heritage of the nation). The socio-economic progress of society, which is taking place under the influence of the scientific and technological revolution, is accompanied not only by an increase in NW, but also by an increase in the share of intangible wealth in its total composition.
The gross national product (GNP) is calculated in two ways. On the one hand, it is defined as the sum of expenditures of end users for the purchase of goods and services. On the other hand, as the sum of incomes of business entities created in the production process.
In the SNA pivot table, the first approach characterizes the production account, the second - the distribution of GNP. Obviously, when calculating on the basis of different methods, the value of GNP should be the same, since buying (spending money) and selling (receiving money) are two parties to the same transaction. What is spent on the production of a product is income for those who have invested their human, material and monetary capital in the creation of a product and its implementation on the market. This position can be represented as an identity:

When calculating GNP by expenses, the following main types of expenses are summed up:

Thus, the calculation of the produced GNP by expenditure can be represented by the equation:
VNP \u003d C + I g, + G + X n,.
The calculation of GNP by income characterizes the procedure for its distribution to the income of business entities (remuneration for labor, rent payments, interest, profit) and the formation of distributed funds that are not related to the payment of income.
Remuneration for the work of employees W is the largest source of income. This category of income includes: wages paid by private and state-owned enterprises to employees, as well as many additions to wages (entrepreneurs' contributions to social insurance, private social security funds, medical services, etc.).
Rent payments represent income received by the owners of land, buildings and structures. Interest K forms an income item for the owners of monetary capital. Profit P consists of two main elements - corporate profits and property income.
In the system of national accounts, corporate profits include:
firstly, taxes on corporate profits, that is, part of the profit received by the government, secondly, dividends - part of the profit paid to shareholders in the form of income on shares, thirdly, retained earnings of corporations, directed to increase the real assets of firms (investments in means of production, securities, an increase in funds in bank accounts). Income on property in the SNA includes profits from the unincorporated business sector.
Funds not related to the payment of income include depreciation deductions A and indirect taxes on business N b, which are part of the costs of firms. Indirect taxes include excise taxes, value added tax, property tax, royalties and customs duties. The final calculation of GNP by income can be presented as follows:
GNP \u003d W + R + K + P + A + N b
GNP in the system of national accounts is calculated at current market prices. Therefore, he estimates the nominal value of the total annual production. To take into account the effect of inflation on the value of nominal GNP, an indicator is needed that quantifies changes in the level of average prices for goods and services. This indicator is called the GNP deflator.
The deflator takes into account price changes for the widest range of products and services for both consumer and investment purposes. Therefore, it does not coincide with the consumer price change index, which is usually tracked by buyers.
Based on the data on the value of the nominal GNP and the value of its deflator, the real GNP is calculated, which characterizes the physical volume of production:

Determining the real GNP is of paramount importance in assessing the growth rate of the current volume of production in relation to the base year.

Topic 3 Macroeconomic equilibrium
When studying the economy at the macro level, the most important research method is the method of equilibrium analysis.
At the macro level, the following categories are used:
1.national income;
2. investments;
3. savings;
4. consumption by the general population;
5. other income and expenses of the society as a whole.
There are two approaches to exploring these issues:

2. Keynesian approach - Neynsian model.
The following markets and their dynamics are studied at the macro level:
1. The market for goods and services, where the main agents are investments and savings. With a decrease in investment, there is a decrease in economic growth, which negatively affects the production of goods and services.
2. The money market is subject to Fisher's law, while an increase in the money supply leads to inflation, rising prices and other negative factors that destroy the country's economy.
3. The capital market entirely depends on the level of%, with its increase, the demand for capital falls, which slows down economic growth. Low% also reduces the inflow of capital itself.
4. The labor market is the main factor, which is wages, with low wages, demand exceeds supply and vice versa.
Studying the dynamics of the market system, it should be considered in close connection with politics, social and demographic factors and especially production, a violation in the sphere of which will necessarily lead to a change in the balance in all markets.

Aggregate demand is aggregate supply.
Aggregate demand is the total demand for final products or the real volume of national production that all consumers are willing to buy at any possible price level.
Aggregate demand is formed by 4 sectors of the economy and includes:
1) consumer demand is the aggregate demand of all households;
2) the demand for goods and services from the state;
3) demand for investment goods;
4) demand for domestic goods from foreign countries (net exports).
Based on the analysis of the aggregate demand, the curve "AD" is plotted graphically.
Curve "AD" is the inverse relationship between the real volume of GNP and the level of prices for GNP products.

Non-price factors of aggregate demand:
1) An increase in consumer spending due to an increase in real income leads to an increase in aggregate demand and a shift in the curve up and to the right.
Real income may rise as a result of higher securities prices or lower income tax rates.
Real income is declining due to an increase in debt on loans and an increase in income tax rates.
2) Changes in investment costs. Investment growth factors.
a) reduction of the% rate;
b) expectation of high return on investment;
c) tax cuts;
d) introduction of new technologies.
Investment growth shifts the “AD” curve to the right and vice versa.
3) Change in government spending.
A cut in government programs will reduce demand and shift the AD curve to the left and vice versa.

The aggregate supply is the sum of the value of all final goods and services presented for sale, which are in direct proportion to the price level.
Non-price factors of aggregate supply.

The theory of general economic equilibrium is a classical model.
The classical basic macroeconomic model was developed by the classics A. Smith, J. B. Say, D. Riccardo. The law of economic equilibrium of JB Sey says: "The supply of goods creates its own demand, the volume of production produced automatically provides income equal to the value of all created goods, and therefore is sufficient for its full implementation."
According to Sei's law:

The economists of the classical school proceeded from the assumption that the market system in the long run ensures the full use of resources, and the market is able, through automatic self-regulation, to cope with the imbalances that arise. Thanks to this mechanism, the economy always achieves the proper level of production at full employment, and the "AS" curve is completely inelastic.
The classic model "AD - AS".
The classical model existed for about a century, failing to withstand the test of the great depression of the 1930s, when the economies of capitalist countries faced a stable and long-term state of macroeconomic imbalance.
Real interest did not fit into the concept of automatic self-tuning of the market, and a need arose for a macromodel that could theoretically justify market interest with a non-price mechanism. This problem was brilliantly solved by John Maynard Keynes.

Keynesian theory of macroeconomic equilibrium.
Keynes rejected Say's law and rejected the assertion that supply creates demand, and Keynes considered demand as a critical variable and proved that the dynamics of social production and employment depend on it. Keynes and his followers assume that prices and wages change little, especially in the short run. At the same time, prices and wages have ceased to be primary, if the aggregate demand is not sufficient, then the volume of production will not be equal to the potential aggregate supply at full employment. Keynes argued that it is the state that should help the economy out of the crisis.
By pursuing an active macroeconomic policy aimed at stimulating demand. Modern economics recognizes both concepts (position) and believes that the supply curve should consist of 3 segments.

All three segments of the "AS" curve reflect possible in reality different reproductive situations.
Segment I: With a change in aggregate demand, there is an increase in the real volume of national production. At the same time, prices change little (absolutely flexible offer).
Segment II: The intermediate segment assumes that increases in production and costs lead to price changes. The dynamics of prices is reflected in the use of old equipment and less skilled workers, etc.
Segment III: This is a classic segment when demand changes, prices increase with a constant volume of production. Because society has reached "full employment" a completely inelastic supply.

Consumption, savings and investment problems.
Keynesian theory holds that investment and savings are interconnected. So investments (capital, investments) determine the scale of expanded reproduction. There are concepts:
Cash income is the flow of money over a period of time.
Money is a reserve, i.e. a certain amount at the moment.
The flow of money is the money earned by the subject.
The stock of money is the money that the subject owns.
The increase in the money supply occurs:
a) as a consequence of the reduction in consumption (reducing the flow);
b) the exchange of non-monetary assets (labor) for money;
Thus, money in circulation forms either a flow or a stock.

Dependence of consumption on income
(consumption function - cash flow).
In macroeconomics, consumption is the sum of all goods that have been bought and consumed over a given period of time. Consumption is inextricably linked with economic indicators: price level, income, rate (%) and so on.
The relationship between income and consumption is a consumption function associated with cash flow. At the same time, the consumption factor is subjectively individual.
Income-consumption model.

Relationships
D \u003d P + S \u003d\u003e S \u003d D - P \u003d\u003e P \u003d D - S
D - income
P - consumption
S - saving
Savings propensity:

From the two, the conclusion is drawn C + S \u003d Y
MPC + MPS \u003d 1
MPC \u003d 1 - MPS
MPS \u003d 1 - MPC

Savings are created not only by individuals, but also by legal entities that exist for further investment in the development of production.
Saving is the basis of investment - expenditures for expansion, renewal of production, directed to the introduction of new technologies. Investing can be:
- financial (purchase of shares and other financial assets)
- real (money for shares is invested for new equipment).
Investment (investment demand) depends on a number of factors:

Model - investment - savings -% rate.

Investment is a decreasing function of the% rate. The higher the interest rate, the more expensive loans and less demand.

Investment model - savings - national income.
Consumption is a function of income.

C \u003d f (x) Y \u003d C + I
Income is equal to consumption plus investment.
Point E shows that investment and savings are the same, but there is no full employment.
If S\u003e I, then the quantity of goods produced is greater than there is a need for it, which serves as a signal to reduce production. If S< I , то количество товара не достаточно и спрос неудовлетворён. Точка Е 1 показывает, что именно здесь полная занятость, но инвестиций не хватает, следовательно для сохранения равновесия между II и SS нужно сдвинуть в I 1 I 1 т.е. сделать дополнительные инвестиции, которое может сделать только государство при наличии нужных средств. Кейнс доказал, что при падении спроса производители должны снизить цены или сохранять прежний уровень цен, но при этом сократить производство и рабочих и только инвестиции государства позволит стимулировать производство и экономику.
Consumption is dependent on income, so consumption increases with income and vice versa.
Population's propensity to consume:

ARS \u003d C / Y where C is consumption, Y is national income

The rate of increase in income must always be greater than the rate of increase in consumption. ? Y\u003e? C. МРС - always less than 1
Conclusion: With MPC \u003d 1, savings do not increase. With MPC \u003d 0, savings increase, but consumption does not increase, due to an increase in income.

Model "national income - total expenditures".
Keynesian Cross - GNP can be viewed in terms of income, and investment is the cost of productive consumption.
If GNP is considered only through C, then the level of GNP is S, and point E 0 is equilibrium, then savings are equal to zero. If we add I to C, then production increases to N and the equilibrium point E. C + I + G is a government investment in production (G). The level of GNP increases when the total expenditure increases, not the amount of income from net exports.
C + I + G + X H is net export, then GNP is equal to N 2 and point E 2 while the economy is gradually approaching FF, i.e. full employment, but this is achievable by means of the multiplier effect.

General equilibrium in the real and money markets. IS - LM curves.

The LM curve shows the equilibrium in the money sector. It is built through the points characterizing the relationship between% rates and the level of income at which there is a demand for money and supply. The curve is smoothly emerging, which shows a direct relationship, the increase in income with a higher% rate. The left side of the LM is almost horizontal, reflecting the low% rate (infinite elasticity). The IS curve has various combinations of real income level (y) and rate% r. The intersection points indicate that the money market will be in equilibrium if the increase in real income matches a high% interest rate. With an infinitely elastic demand for money, it causes a speculative demand for money, since at low%, securities are not quoted. This situation is called a "liquidity trap". At the same time, only the state is capable of intervening in the economy, pursuing its monetary and financial policy, fighting inflation and solving the problem of a decline in production.

Topic 4 Cyclicity of economic development

The development of the economy of any country occurs in waves, i.e. cyclically.
economic activity of the population, fluctuations in the level of employment and rates The economic cycle is a periodic change in business production.
The economic cycle covers successively replacing phases:
1. The most striking phase of the economic cycle is the crisis.
An industrial crisis occurs as a result of an imbalance between aggregate demand and supply. It is accompanied by a general overproduction of goods, the market overflows, demand falls, huge stocks of goods accumulate, the enterprise continues to operate at full capacity by inertia, prices fall, the bankruptcy and collapse of enterprises, after the liquidation of enterprises, banks, credit institutions and the entire infrastructure of the market perish. On October 29, 1929 (the so-called "Black Thursday"), America experienced a massive banking crash that marked the beginning of the Great Depression.
2. Depression occurs after a crisis, and may be of a prolonged nature. The level of production is stable, but very low, the level of unemployment is high, but the fall in prices stops, a meager% falls, and stocks stabilize.
3. The revival is accompanied by an insignificant level of production, a decrease in unemployment, prices are gradually increasing, a meager% is growing, the demand for various innovations is growing in the commodity market.
4. The upsurge is characterized by a feverish rise in production, the level of which exceeds that achieved in the previous cycle, prices rise, unemployment decreases, wages rise, demand sharply increases, and the scale of production expands.

There are various theories and approaches to defining economic cycles:
Academic economists distinguish three types of economic cycles depending on their duration (short-term, medium and long-wave cycles):

Short-term cycles are usually called Joseph Kitchen's cycles, the cycle period is 3 years 4 months (40 months) The second author of the theory, Wesley Mitchell, defined the economic cycle as 40 months long and believed that the cause of the cycles should be sought within the economic system, especially in the sphere of money circulation.

Medium-term cycles - Krement Zhuglyar, cycle frequency - 10 years, saw the cause of the crisis in the imperfection of the banking system and credit.

The author of long waves Nikolai Dmitrievich Kondratyev, who on February 6, 1926, at the Institute of Economics of the Russian Association of Research Institutes of Social Sciences, made a report on the topic: "Large cycles of economic conjuncture outlined the concept, which is now called the theory of long waves." The essence of the concept: together with short and medium-term cycles, there are economic cycles with a duration of 48 - 55 years. ND Kondratyev analyzed 3 periods and established 2.5 cycles:

ND Kondratyev identified the factors that underlie long-term conjunctural fluctuations. Changes in the price mechanism actively affect the dynamics and state of the main parameters of the national economy, including the movement of capital and the size of production. The theory of long waves underlies the understanding of qualitative shifts in the development of the economy and the socio-economic processes interconnected with them. The material basis of large cycles is associated with the renewal of long-term elements of fixed capital, in the technical base with the creation of new types of raw materials, new sources of energy and the development of fundamentally new technologies. Long wave theory is also related to the problem of forecasting. The nature of the phases of a large cycle (decreasing or increasing) contributes to the fact that medium-term and short-term fluctuations and recessions are distinguished by a special duration and depth. The upward wave according to Kondratyev, on the contrary, smoothes out medium and short-term cycles. The concept of long waves helps to understand and highlight the stages and milestones of changes and transformations associated with technical revolutions and structural transformations in the economy, as well as confirms the relationship and interaction of economic and social changes, political processes that are generated and amplified by a combination of factors and contributes to the resolution of emerging contradictions ...

Task: 1) build the cycles of Kitchen, Zhuglyar, Kondratyev and analyze all the concepts associated with economic transformations in the economy.

Topic 5 Unemployment and inflation as manifestations of economic instability
The next signs of macroeconomic instability are the existence and periodic growth of unemployment in society, i.e. such a situation when part of the working-age population does not find work. UNEMPLOYED is one who wants and can work, but does not have a job.
Economists distinguish between the following main types of unemployment:

Cyclical unemployment. It is she who is caused by recessions in production. This is the most "unpleasant" type of unemployment - often massive and painful. Frictional unemployment covers those who find themselves in a position "between jobs" (change of place of work, residence associated with the birth of a child; job search for those who have returned from military service, etc.). A certain part of people is always in a similar situation, therefore this type of unemployment exists constantly.
Structural unemployment is associated with changes in the structure of folk professions and even entire industries, restructuring of the regional economy, with changes in technology.
For example, declining efficiency and reduced coal production cause unemployment among miners. The mechanization and automation of production is pushing out manual workers. It will take time for the “structural” unemployed to retrain and find new jobs. Thus, following frictional, structural unemployment is also inevitable and always exists in society.
Partial unemployment covers forced part-time workers.
Hidden unemployment includes people who formally seem to be working, but in fact take extra jobs.
Such unemployment is especially characteristic of low-productivity agriculture, various administrative structures with irrationally bloated states, as well as socialism in general, which deliberately created unnecessary jobs everywhere in order to prevent open unemployment. So, in the USSR, according to some data, hidden unemployment after 1930 (when the last labor exchange was closed) reached 10-15% of all workers.
Measurement and consequences of unemployment.
To characterize the situation with unemployment, three interrelated indicators are most often used.
¦ The unemployment rate is the percentage of the unemployed in the total working-age population. For example (arbitrary figures), if in country x out of 96 million able-bodied people, 9.6 million do not have and are looking for a job, then the unemployment rate in it reaches 10%\u003e (9.6: 96) * 100.
¦ Natural unemployment rate is the “normal” minimum possible level of unemployment in the country, at which there are only two inevitable types of unemployment - frictional and structural, and there is no “main” type of it - cyclical unemployment. Moreover, the number of vacant jobs is generally equal to the number of people looking for work.
¦ Full employment. This is how they call such a situation with employment in society, in which unemployment does not exceed its natural level (approximately 5-6%).
Among the negative consequences of unemployment, the main one is under-production, the loss of part of the GNP. To determine the magnitude of this loss, the so-called OAKEN'S LAW 1 is used, which expresses the mathematical relationship between the unemployment rate and the upholding in the growth of GNP. It is believed that each percentage of excess of the natural level of unemployment "gives" a 2.5% decrease in the annual GNP. For example, with natural unemployment at 6% and actual unemployment at 9%, the GNP loss will be 7.5%\u003e (9-6). 2.5. Unfortunately, unemployment has other COSTS:

Essence and types of inflation.
Another manifestation of macroeconomic instability is inflation, which is usually understood as a sustained increase in the general price level. This does not mean that all prices will necessarily rise. Some of them can take off quite abruptly, others remain relatively stable, and still others even decline. But the average price level is going up. Inflation is a two-way process, the growth of money, on the one hand, causes a depreciation of money, on the other, because less and less goods and services can be bought for the country's monetary unit (say, the ruble) (the purchasing power of money is falling).

Thus, inflation is a two-pronged process of general price increases and money depreciation. The inflation rate is measured using the PRICE INDEX, which reflects the percentage increase in the value of the so-called "market basket" (a certain set of goods and services) for a given period.
The main types of inflation:

So, depending on the average annual rate of increase in prices, there are:

According to the forms of manifestation, open and hidden (or suppressed) inflation are distinguished.
open - this is inflation, which is clearly manifested in the growth of the general price level.
HIDDEN inflation is characteristic of centralized economies, where the so-called firm government prices are fairly stable and "officially" hardly grow. However, in this society, the shortage of goods is constantly exhausting; huge losses of time, nerves and human dignity in excited queues and an endless search for the most necessary; rampant speculation and significant overpayments for "getting" the deficit. Moreover, the additional income goes not to producers and not to the needs of the whole society - to the state budget, but to the pocket of dodgy speculators. All these are manifestations of latent inflation - a kind of payment for formal price stability.
Causes and consequences of inflation.
Inflation is a very multifactorial phenomenon. To understand at least its main REASONS, let us consider two interrelated types of inflation with the conventional names "demand inflation" and "cost inflation".

¦ Demand inflation occurs when aggregate demand is greater than aggregate supply (too much money “chases” less goods, since the expenditures of the state, population and firms grow faster than production). This situation can arise for many reasons. Let's say a) if the economy, already operating at full capacity, cannot increase the production of goods and services, and demand continues to grow. Or b) when a “caring” state subsidizes or unjustifiably credits one or another production (for example, agricultural) without the proper return on the part of the latter, c) the same happens with excessive military spending: they inflate demand without a corresponding increase in the supply of goods. Finally, d) demand inflation is a natural result of excessive emission (issue) of money, which violates the law of monetary circulation, which requires a correspondence between the volumes of goods and money. All these and other possible reasons are often intertwined, complicating anti-inflationary measures in society.
¦ Cost inflation is called so because it is caused by an increase in production costs. The latter, in turn, may rise due to an increase in nominal wages, energy and raw materials prices, etc. The rise in costs prompts firms to either 1) directly raise prices for their products, or 2) reduce production, which has become less profitable at the current price level (as a result, the total supply of this product decreases, and prices for it again rise). In this case, the increase in costs often takes on the character of a chain reaction. An increase in wages for, say, power engineers increases, first, the costs of energy production and electricity tariffs, and then along the chain - the cost of telephone services, travel in the subway, bread production, etc. It is with this that the danger for society is associated, to enter the so-called INFLATION SPIRAL OF Wages and Prices, when each new increase in wages (not supported by an increase in productivity, but only offsetting inflation), through growing costs, causes another round of price increases.
Inflation consequences:
First, a significant redistribution of income in society in favor of: a) enterprises - monopolists, b) financial structures (profiting from extortionate interest and money speculation), c) shadow economics, and d) some other spheres and individuals (for example, heads of firms able to "assign" any salary to themselves). At the same time, recipients of fixed income (pensioners, students, public sector employees, etc.) lose the most.
Secondly, in the event of strong inflation, normal social and economic relations are destroyed. Money loses its value and ceases to fulfill its functions, commodity exchange processes are disorganized, production is reduced, economic ties are broken, financial speculation, bankruptcies, depression, social and political unrest, etc. intensify.

The relationship between unemployment and inflation.
How are unemployment and inflation related? Economists answer this question in different ways. Thus, supporters of Keynesianism put forward the idea that there is a stable relationship between inflation and unemployment: an increase in inflation is accompanied by a decrease in unemployment, and vice versa. Consequently, either unemployment or inflation can arise in the economy. In their reasoning, Keynesians proceeded from the so-called Phillips curve 2, which graphically reflects the alternative relationship between unemployment and inflation.

As you can see from the graph, evidence from the 60s supports Philips' concept. Indeed, until the 1970s, most economic cycles were characterized by:

These processes are natural, since the decline in production consistently causes:

When production is on the rise, the picture is the opposite: unemployment gradually crumbles, the incomes of an expanding circle of workers begin to grow, increasing costs, demand and, as a result, prices along the chain.
However, in the 70s, a different phenomenon was discovered in Western countries - stagflation 3, in which stagnation of production (stagnation, depression) is accompanied not only by high unemployment, but also by growing inflation. That is, stagflation no longer means ALTERNATIVITY (either), but a COMBINATION of unemployment and inflation. This is contrary to Keynesian findings.
And although stagflation stopped by the end of the 1980s, most economists nevertheless agreed that the relationship between unemployment and inflation should not be interpreted unambiguously - only as reciprocal (by the way, the author of the Phillips curve himself warned about this). The nature of this relationship is determined by many factors, therefore, in the long term, it may change from time to time. This is also confirmed by factual data. For example, the graph of price movements and unemployment in the United States in 1961-90 does not look like a planned curve, but rather a broken line.

Topic 6 Main directions of economic policy
Chains of state regulation and social and economic policy of the state:

The main directions of state regulation:

Administrative and legal regulation is manifested in the creation by the state of the legal foundations of the economy, which include: the right and forms of ownership, the rule of economic activity, the regulation of labor relations, the establishment of minimum wages and pensions, the protection of consumer rights.
Management of the most important spheres of society is manifested in the conduct of antimonopoly policy by the state and direct state management of objects and spheres: defense, energy, minerals, water resources, education, health care and other objects of state property.
Financial policy of the state.
Finance is the totality of society's monetary funds and related economic relations.
There are two lines in financial policy:

The intersection of these lines is the state budget. The state budget is the main link in financial policy and the most important instrument of macro regulation.
The state budget is the financial program of the state's activities, reflecting all its monetary resources (income) and their distribution (expenses). Revenues are generated from economic activities and taxes, and expenditures from government purchases of goods and services and payments (pensions, subsidies, salaries, subsidies - transfer payments).
Depending on the existing ratio between revenues and expenditures of the state budget, there are:

Surplus (D\u003e P)

The main ways to solve the problems of the state budget deficit:

At the same time, government loans form government debt, i.e. the amount of government debt on outstanding domestic and foreign loans.

Fiscal policy, types and functions of taxes, Laffer curve.
Fiscal is the policy of the state in the field of taxes, as the main source of income for the state budget. At the same time, taxes are mandatory payments of individuals and legal entities to state and local budgets.
The main types of taxes are grouped according to the characteristics:
I. Objects of taxation:
1) taxes on income;
2) property;
3) for expenses.
II. Collection methods:

III. Methods for determining the amount of tax;

IV. Taxation levels;

V. The order of use;

Functions of taxes:

Laffer curve

Analysis: As the tax rate increases from 0 to 100%, tax revenues first increase to a certain maximum level of point M, and then decrease to 0. At the same time, tax revenues at conditional points B (high tax rate) and at the low point of taxes H tax receipts are equal.
If the tax rates are 0, then the state does not receive any taxes. If the tax rate is 100%, there is no incentive for production, and the result for the state is also zero.
A reduced tax rate at point H is more expedient for the state: the higher the economic activity of people, the greater the volume of production and employment, and the higher the level of welfare of society. Thus, in the long term, a reduction in excessively high taxes in a market economy can provide the country with an increase in investment, expansion of production and employment, and hence an increase in budget revenue, a reduction in its deficit and a weakening of inflation. The most favorable tax rate for the state is at point M (50%).
Financial regulators.

Discretionary (directive) automatic

Directives are put into effect by a special decision of the authorities, for example: additional taxes, minimum wages (minimum wages)
They automatically turn on on their own, thanks to "built-in stabilizers", which are pre-embedded in financial documents and work under certain conditions, for example: a progressive tax system "automatically includes" an increased tax rate on income exceeding a certain level.
The government's monetary policy is aimed primarily at preventing economic downturns, unemployment and inflation.
At the same time, the state influences such indicators and levers as:

To maintain economic stability, it is very important to observe equality between the commodity and money supply, i.e. compliance with Fisher's law.
Monetary circulation in the country requires the creation of monetary aggregates according to the degree of their liquidity, i.e. the ability to be spent without loss or with little loss of their purchasing power. With the development of credit and settlements through banks, the structure of the money supply.
Monetary aggregates are designated M 1, M 2, M 3, M 4 according to the degree of their liquidity.
М 1 - includes cash, check deposits;
M 2 - includes M 1 plus check-free savings accounts and small time deposits;
M 3 - includes M 1 and M 2 plus government bonds;
M 4 - includes M 1 M 2 M 3 plus large term deposits.
This structure is dynamic, it can change depending on the liquidity of the aggregates.
In countries with a developed banking system, there is an increase in the volume of deposit and credit money, i.e. those that appear on deposits and therefore can be provided on credit.
Example: let's say a deposit of $ 100 is made to the first bank, while the established CB. the reserve capital ratio is 20%, then after the fulfillment of the mandatory reserve requirements, the 1st bank is left with the opportunity to lend $ 80. It turns out a loan through the payment of various bills eventually settle on the 2nd bank. The latter deducts $ 16, in the 2nd bank $ 64 remains.
Thus, the state regulates bank reserves and discount rates in order not to violate the money exchange equation.

Monetary reforms.
This is a complete or partial transformation of the monetary system.
Methods of monetary reforms.

Social and regional policy of the state
Under the conditions of the command-administrative system of management, the economy of any territory was controlled by union, republican, sectoral bodies, and there was no integral management of the economy.
With the transformation processes and new economic conditions, additional problems have arisen associated with the territorial features of the formation of market relations. This necessitates the development and implementation of a well-grounded regional policy of the state at a new stage of its development.
The formation of such a regional policy should proceed from the following fundamental requirements:

Fig. 14. Equilibrium in the labor market

All other things being equal, the higher the wages that workers demand for their work, the fewer employers will agree to hire (the law of demand). And on the other hand, the higher the pay offered by employers for performing a certain type of work, the more people are ready to do this type of work (the law of supply). At the intersection of ethical interests is the equilibrium price of labor - that wage at which the number of people willing to do a certain job and the number of available jobs coincide.
The labor market encompasses methods, social mechanisms of organization that allow sellers (employees) to find the job they need, and buyers (employers) - workers they need to conduct production - commercial or other activities.
Turning to the analysis of the labor market, it must be remembered that it is not soulless goods that act on it, but people who form an organic unity with the labor force, which is the object of sale and purchase. Therefore, one should take into account the logical, social, national, cultural, spiritual and other aspects of human behavior.
In most countries of the world, there are two ways of buying and selling labor: individual labor contracts and collective agreements (agreements). The collective agreement fixes the agreement of the parties' positions on the widest range of issues.

Entrepreneurship as a factor of production. Profit
entrepreneur as "residual income"

Entrepreneurship is an integral attribute of the market economy, the main distinguishing feature of which is free competition. This is a specific factor of production, firstly, because, unlike capital and land, it is intangible. Secondly, we cannot interpret profit as a kind of equilibrium price, by analogy with the market for labor, capital and land.
Entrepreneurship as a special type of economic thinking is characterized by a set of original views and approaches to decision-making, which are implemented in practice.
To characterize entrepreneurship as an economic category, the central problem is the identification of its subjects and objects. Business entities can be primarily private individuals (organizers of individual, family, and also larger industries). The activities of such entrepreneurs are carried out on the basis of both their own labor and hired labor. An entrepreneurial activity can also be carried out by a group of persons connected by contractual relations and economic interests. The subjects of collective entrepreneurship are JSCs, rental collectives, cooperatives, etc. In some cases, the state, represented by its respective bodies, is also referred to as business entities. Thus, in a market economy, there are three forms of entrepreneurial activity: state, collective, private, each of which finds its own niches in the economic system.
For entrepreneurship as a method of running an economy, the first and main condition is the independence and independence of business entities, the presence of a certain set of freedoms and rights to choose the type of entrepreneurial activity, sources of financing, the formation of a production program, access to resources, sales of products, setting prices for it, disposal of profits, etc.
The second condition for entrepreneurship is responsibility for the decisions made, their consequences and the associated risk. Risk is always associated with uncertainty, unpredictability. Even the most careful calculation and forecast cannot eliminate the factor of unpredictability; it is a constant companion of entrepreneurial activity.
The third condition of an entrepreneur is a focus on achieving commercial success, striving to increase profits.
The object of business is the most effective combination of factors of production to maximize income. “Entrepreneurs combine resources to produce new goods unknown to consumers; discovery of new production methods (technologies) and commercial use of existing goods; development of a new sales market and a new source of raw materials; reorganization in the industry with the aim of creating one's own monopoly or undermining someone else's ”(J. Schumpeter).
The main functions of entrepreneurship:
1) the creation of a new material benefit that is not yet familiar to the consumer or a previous benefit, but with new qualities;
2) the introduction of a new method of production that has not yet been applied in a given branch of industry;
3) the conquest of a new sales market or wider use of the previous one;
4) the use of a new type of raw material or semi-finished products;
5) the introduction of a new organization of business, for example, a monopoly position or, conversely, overcoming a monopoly.
The profit of an entrepreneur is understood as the difference between the income received by the enterprise from the sale of goods and the expenses that were incurred by him in the process of production and sales activities. Thus, unlike wages, interest and rent, profit is not a kind of equilibrium price, which is of a contractual nature, but acts as a residual income.
Modern economists interpret profit as a reward for the function of an entrepreneur, that is, as income from the factor of entrepreneurship (entrepreneurial income).
Entrepreneurial income is obtained as the balance after deducting interest on loans, taxes and other payments to the budget from the gross profit.
Entrepreneurial income includes:
1) normal profit (the entrepreneur's salary), that is, the normal remuneration to the entrepreneur, necessary in order to attract and keep him within the limits of a given line of activity. Normal profit is included in the internal costs of the firm. If the remuneration does not ensure the stability of the firm, then the entrepreneur will reorient his efforts towards a more profitable line of business or abandon the entrepreneurial role for the sake of wages in another firm.
From the standpoint of a competitive entrepreneur, normal profit depends on the normal return on capital and the rate of entrepreneurial income. By its economic nature, profit represents the price of choosing the production of a given good or service. It should be no less than the lost profit that the entrepreneur could receive if he invested his own capital, means of production, ability to other production;
2) income received in excess of normal profit, that is, economic (net) profit.
In a dynamic economy, the origin of net profit is associated with uncertainty, uninsured risk.

Capital market and interest

Capital marketis a market where money is sold.
Interest, like wages, is one of the varieties of factor income. The owner of the factor capital receives his income in the form of interest. Interest as income on capital will be the higher, the higher the productivity of real economic goods, represented by capital assets as factors of production.
The source of interest is the income that capital is able to bring as a result of use, production use.
For complex production processes at the current moment or for their implementation in the future, the accumulation of funds is required, which, as they turn into real capital, will be highly productive, and therefore will bring higher income in the future.
The generalizing expression of income on capital is the interest rate, that is, the amount of income that is calculated for a certain period of time, most often for a year, as a percentage of the amount of capital used. The amount of income received is, in essence, the value of capital, up to such forms as cash, loans, securities, etc.
The common denominator to which the cost of capital in any form of asset is reduced is their monetary value. In monetary terms, the cost of hydropower plants and berths, tractors and computers, building materials and raw materials for a cannery can be summed up.
Capital is in demand because it is productive.
The demand for capital is the demand for investment resources, not just money. When they talk about the demand for capital as a factor of production, they mean the demand for investment funds necessary for the acquisition of capital in physical form (machinery, equipment, etc.).
The subject of demand for capital is business and entrepreneurs.
The subjects of capital supply are households.
The lending rate is the price paid for the use of money. More specifically, the lending rate is the amount of money required to pay to use one dollar per year. Two aspects of this type of income are noteworthy.
1) Lending interest is usually considered as a percentage of the amount of money borrowed, and not as an absolute value. It is more convenient to say that someone is paying 12% of the lending interest than to say that the lending interest is $ 120 per annum for $ 1,000. by the absolute value of the amounts. By expressing the lending interest as a percentage, we can directly compare the payments of the lending interest, say $ 432 per year to the amount
$ 2880 and $ 1800 per year - from $ 12 thousand. In both cases, the payment of the loan interest is 15% - a fact that is not so obvious if we operate in absolute terms.
2) Money is not an economic resource, it is a financial resource. As such, money is not productive; they are incapable of producing goods or services. Business makes a demand for investment resources, that is, it requires a certain amount of money to buy production assets (capital in physical form). However, entrepreneurs “buy” the opportunity to use money because money can be used to purchase means of production — factory buildings, equipment, storage facilities, etc. And these funds undoubtedly contribute to production. Thus, using money capital, enterprise managers ultimately buy the opportunity to use the real means of production.

Land market and rent

Having considered the capital and labor markets, we turn to one of the most difficult markets - land market.
Earth- a unique means of production: it is quantitatively limited, it cannot be artificially reproduced; land plots differ in fertility, that is, they have different natural productive forces.
Land use has long been regulated by various systems of economic relations. As an economic resource, land has no labor origin and therefore no production costs. This is a gift from nature.
Land as a factor of production has a commodity character, it is bought and sold, and its price in the market depends on the demand for it. But before the means of production appear on the market, it has an initial "starting" economic assessment in the form of a land cadastre. A land registry is a collection of land data.
The amount of land is fixed, therefore, wherever the land is practically used, its supply is absolutely inelastic.
The absolute inelasticity of the supply of land should be compared with the relative elasticity of such property resources as buildings, equipment, warehouses. The aggregate supply of these resources is not fixed. Higher prices will encourage entrepreneurs to build and offer more of these property resources. Conversely, falling prices for them will lead to the fact that entrepreneurs will allow the wear and tear of existing buildings and equipment and will not replace them.
Rent - one of the types of property income, payment to the owner for the permission to apply capital to the land. Its size is determined in the lease agreement. It is paid for the entire time for which the land owner leased the land under the contract. Consequently, land rent - the form in which land ownership is realized economically brings income.
There are the following types of rent:
1) Differential rent- this is a rent that can be obtained only from the best and average in natural fertility land plots;
2) Leasing the worst land also brings rent. This rent is called absolute;
3) Quasirenta- additional income obtained as a result of improving agricultural technology and intensive use of land. The nature and quantitative parameters of improvements depend on the land use conditions existing at a given time and in a given locality, on the entrepreneurial spirit, the size of the capital of land owners and tenants;
4) Monopoly rent based on the monopoly price at which a product of rare quality is sold. It is associated with a monopoly on a piece of land.
Only demand is active on the land market. In the absence of the effect of changing the demand for land, the price, which is set by the owner of this resource, has a decisive decisive influence.
The price of land is defined as the percentage of the rent and the amount of the loan interest.
By selling a land plot, its owner is not selling the soil as such, but the right to receive annual income from it (rent). Therefore, he expects to receive for the land such an amount that, when placed in the bank, will bring him income in the form of interest equal to the rent.
The value of agricultural land is usually expressed as the current rent multiplied by the number of times or, in other words, as a “purchase over a number of years” of this rent.

1. So far, we have been talking about the processes taking place in the markets for goods and services, in which firms act as sellers, and households as buyers of products manufactured by firms.

In the markets for factors of production (resources), on the contrary, the sellers are households - the owners of the factors of production, and the buyers are firms that transform the factors of production into goods and services.

Distinguish between the factors of production themselves and the services provided by these factors. The factors are labor, inseparable from the personality of the employee, land, elements of real capital and entrepreneurial ability. The market for factors of production is a market for the services of these factors. The payment for these services is called the factor price or its income. Wages are defined as payments for labor services. Rent - payment for the services of the "land". Interest - for the "services" of capital. Profit - for entrepreneurial services.

Factor markets follow the same principles as markets for goods and services. The market price of resources is in equilibrium, formed under the influence of supply and demand for a particular resource.

Firms are in demand for factors of production. Such demand is called derivative because it directly depends on the demand for finished goods.

The factor of production is not useful in itself, but only because it can be used to produce a final product that will bring satisfaction to the consumer. For example, the demand for medicines determines the demand for the services of pharmacists and pharmacists. The demand for any factor of production can increase or decrease depending on whether the demand for consumer goods manufactured using this factor of production increases or decreases.

To organize production, many factors are required: labor, land, technology, energy, raw materials. But a change in prices for one of the factors causes a change in the quantity involved not only in this, but also in the factors of production associated with it. Consequently, 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 associated with them.

2. Consider the labor market operating in perfect competition. This means that neither the firm nor the workers can influence the price of labor services, i.e. wage rate.

The demand for labor services is carried out by firms. The cash cost of hiring an employee is the wages the firm pays to the employee it hires. Depending on the method of assessing labor costs, a distinction is made between time-based (for hours worked), piecework (for a certain amount of work).

The amount of demand for labor depends on the level of prices for the products produced with its help, and on labor productivity. The more productive labor is, the higher the price of its product, the greater the demand for this type of labor.

A feature of labor markets and, in particular, the individual labor supply is that in many ways the employee himself determines how much time he would like to work and how much rest. The work-leisure dilemma in relation to the labor market is called the income effect and the substitution effect. It can be demonstrated on the graph (Fig. 20).

The characteristic slope of the individual labor supply curve shows that rising wages stimulate the employee to work only up to a certain moment W0. During this period, leisure and free time are sacrificed to the interests of high income (zone 1). Upon reaching a high financial position, the employee will suspend the further offer of his labor Lo and give up additional employment, even with the continued growth of wages. For this employee, the “income effect” is no longer a priority, that is, the main one, and is sacrificed for the sake of alternative work time of pastime and leisure. The “income effect” is replaced by the “leisure effect” (zone 2).

Fig. 20. Individual worker supply curve

This shape of the labor supply curve underlies the long-term trend towards a shorter working week. Over the past hundred years, the working week in developed countries has decreased from 70 to 40 hours a week.

At the same time, it is important to distinguish between the labor supply curve of an individual and society as a whole. The market supply of labor services has the usual form: as wages rise, the number of man-hours increases. This is because the increase in wages attracts new, previously unemployed people: the cost of lost profits if they stay at home becomes too high for them. In general, the market supply of labor is formed under the influence of a combination of the following conditions:

· Total population;

· The number of active working-age population;

· The amount of time worked per year;

· Qualitative parameters of labor, its qualifications, productivity, specialization.

These factors can change the position of the labor service supply curve.

In competitive labor markets, the price of labor, i.e. wages, is established as a competitive equilibrium of supply and demand for various categories of workers, by type of work.

Setting the minimum wage above the equilibrium W0 leads to unemployment, below the equilibrium W0 - to a shortage (deficit) of labor.

3. The next market under consideration is the land market. It is necessary to distinguish the land itself, as an object of purchase and sale, from the services of land, which can also be bought and sold on the market. The service price of land is the rate of rent per unit of land used over a specified period of time, or the rate of land rent (R).

Land is the primary resource, as it is artificially irreplaceable. The amount of land at any given time is limited, therefore, the supply of land is completely inelastic, i.e. the supply curve is a vertical line (Figure 21).

Fig. 21. Supply and demand in the land market

The volume of plots offered for lease is a given value and does not depend on the levels of rent for their use. The level of the land rent rate is determined by the intersection of the supply and demand curves. An increase in demand with a fixed supply leads to a sharp increase in the equilibrium rent, and vice versa, a decrease in demand will cause a decrease in rent. Consequently, the rent rate is determined only by the level of demand for land services. The amount of ground rent is expressed by the area of \u200b\u200bthe quadrangle. The rent is only a fraction of the amount that the tenant pays to the land owner. The rent includes, in addition to rent, also depreciation of buildings (located on the ground), as well as interest on the capital invested.

Land prices are closely related to land rent. The higher the rent, the higher the price of this plot. Let's say that some piece of land brings in an annual rent - 4,000 rubles. What could be the cost of this site? To answer this question is to determine the opportunity cost for the land owner. The price of the land should be equal to the amount of money, putting it in the bank, the former owner of the land would receive a similar percentage on the invested capital. Therefore, the price of this piece of land should be equal to,

where Pz is the price of a given plot of land;

R is the rent expected from this site;

i - market interest rate.

If the lending rate is 5%, then the price of the land is:

4000/5% \u003d 4000 / 0.05 \u003d 80,000 den. units

A feature of land rent in comparison with other prices for resources is that it does not perform a stimulating function, i.e. does not lead to an increase in the supply of land. For example, high wages for a certain type of labor will help expand the supply of workers of this type of labor. A high level of land rent, especially in modern conditions, when land is developed, will not lead to an increase in the supply of land, since its amount in nature is limited.

4. In modern economic theory, capital is defined as a resource created for the purpose of producing more economic goods. Capital resources include buildings, structures, equipment, raw materials, energy and ideas. Depending on the degree of durability, physical (real) capital is subdivided into:

· Fixed capital, representing real non-expendable assets (buildings, structures, machinery, equipment), serves for several production cycles.

· Working capital - means of production that are consumed at a time in the production process, while changing their natural form and turning into finished products (raw materials, materials, fuel, energy).

Depreciation - a decrease in the cost of fixed capital resources over a certain period of time in the production process and the gradual transfer of their value to the product being produced.

The common denominator to which the cost of capital in the form of any asset is reduced is their monetary value. In monetary terms, the cost of hydroelectric power plants, computers and raw materials for a plant or factory can be summed up. All economic benefits of production purposes, expressed in monetary form, acquire the form of a capital asset circulating on the market. An asset is everything of value that belongs to a person, firm or state as property.

The value of real capital grows in the process of investing money in new buildings, equipment, stocks of raw materials and supplies. These investments in real capital are called investments. Interest acts as income on real capital, because the entrepreneur always makes a choice: either buy equipment or put money in a bank. The choice will be made in favor of entrepreneurial activity if the amount of the bank interest is lower than the income brought by real capital.

In the real market, capital circulates in monetary form. Money is not an economic resource, since it does not participate in the production of goods and services, is not an object or means of labor. But they are used to buy capital goods. Thus, the capital market is a market in which the financial resources necessary to organize the activities of firms are sold. There is also a credit market - a market in which loans are granted and received. The lender, who has temporarily free funds, provides them for a fee for a certain period to the borrower who needs them.

In this regard, the concept of interest rate arises - the price paid for the use of money during the year. It is determined not in absolute terms, but as a percentage of the amount of money borrowed, which allows you to compare interest rates. In a competitive market, the market price is determined based on the match between supply and demand for a product. Consequently, the equilibrium interest rate depends on the demand for and supply of loan capital.

5. Making a decision on investments and investments of funds, involves a comparison of current and future income.

The initially invested amount of money capital increases every year depending on the interest rate. The amount received after a year is determined using the simple interest formula:

V \u003d P (1 + i) \u003d 100 1.1 \u003d 110,

where is the amount of money currently invested (100);

i - interest rate in decimal form (0,1). Therefore, the interest income will be equal to Pi (10).

The amount received after a certain number of years is determined by the compound interest formula:

where t is a time interval of years.

Using the compound interest formula, you can determine the current value of future income. This process is called discounting.

For example, at an annual interest rate of 10%, the ruble will turn into 1.1 rubles in a year, i.e. today's ruble will cost 1.1 rubles. And the ruble, which we will receive in a year, costs 90.9 kopecks today. Consequently, the ruble received today is worth more than the ruble that we will receive in the future.

3.1. Derived demand for factors of production

Pricing in the markets for factors of production plays an important role in the economy: it determines the share of each person in the produced product, income and the level of well-being of all members of society, i.e. distribution of income.

In economic theory, two types of income are distinguished: firstly, income as a private economic concept, that is, at the micro level, is the amount of cash receipts in the hands of a person in accordance with the ownership of the factor of production; secondly, income as a national economic concept (national income), i.e. at the macro level.

Within the framework of microeconomic analysis, the basis for the distribution of income is the ownership of factors of production. How are prices for factors of production (labor, capital, land) established, and, accordingly, incomes are formed in the form of wages, interest and land rent, that is, factor income? The factor income is also the entrepreneur's profit.

The economic mechanism of distribution in the market system is the price of a resource, or a factor of production, which determines the amount of consumer income. Market prices, in turn, determine the structure of consumer spending, their ability to buy a particular product and thus affect the amount of income of other people.

Prices for factors of production in conditions of perfect competition are determined by the ratio of supply and demand. But, firstly, the demand for factors of production and the level of their prices are derived from consumer demand, since labor, capital, land are ultimately needed in order to produce consumer goods necessary for people. Consequently, the demand for a particular factor of production depends on the demand for goods produced using this factor. The demand for labor, capital and land is always a derived demand. For example, the demand for railroad workers is driven by the demand for transportation. This means that the size of the demand for a certain factor depends on the productivity of this factor in creating a product and on the price of the goods produced with the help of the factor.

Secondly, all factors of production are economically and technologically interrelated, they cannot be used separately. For the production of goods, all three factors are necessary and in a certain ratio to each other. The size of demand for each factor depends not only on the level of prices for this factor, but also on the level of prices for other resources: for example, the demand for labor depends not only on wage rates, but also on how many machines, raw materials will be purchased and what are prices for them. When the price of a certain factor of production increases, the demand for it (all other things being equal) will decrease, and the demand for another factor will increase; a higher price, for example, for labor, will lead to its replacement by machines. The possibility of substituting various factors of production allows you to combine them in such a ratio that provides the lowest production costs and the highest profit.

Market distribution is characterized by significant income inequality. Alleviating the negative effects of income inequality is achieved through state social programs.

3.2. Labor market and wages

Wages form the majority of consumer income and therefore have a significant impact on the size of demand for consumer goods and their prices.

Modern economic theory defines wages as the price of labor. It also includes income in the form of fees, bonuses and other types of remuneration for labor.

In the narrow sense of the word, wages are understood as the rate of wages, that is, the price paid for the use of a unit of labor for a certain time - hour, day, etc. This definition allows you to distinguish between total wages and wages proper.

Distinguish between nominal and real wages.

Under nominal wages means the amount of money that an employee of hired labor receives for his daily, weekly, monthly work. Real wages - this is the mass of life benefits and services that can be purchased for the money received. It is directly dependent on the nominal wage and inversely on the level of prices for consumer goods and paid services and is calculated by the formula:

where W r - real wages, W- nominal wages, P- price index.
The classical theory of employment involves the construction of functions of the aggregate demand for labor and the aggregate supply of labor, applicable to the conditions of the market of perfect competition. The subjects of demand in the labor market are business and the state, and the subjects of supply are households.

In the market of perfect competition, the number of employees hired by entrepreneurs is determined by two indicators - real wages and the cost (in monetary terms) of the marginal product of labor. With an increase in the number of hired workers, there is a decrease in the value of the marginal product (recall the law of diminishing returns). The attraction of an additional unit of labor will cease when the value of the marginal product equals the value of wages.

Labor demand is inversely related to the amount of wages. With an increase in wages, other things being equal, the entrepreneur, in order to maintain equilibrium, must accordingly reduce the demand for labor, and with a decrease in wages, the demand for labor increases. The functional relationship between the amount of wages and the amount of labor demand is expressed in the labor demand curve (Fig. 5).

Features of the formation of supply and demand 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 variety of markets for a specific resource. For example, the labor market consists of a market for 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 - rent; the price of labor is 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 goods. However, it is necessary to note two important points that affect 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 goods, since labor, capital, and land are ultimately needed in order to produce consumer goods. Second, all factors of production are economically and technologically interrelated. Therefore, the amount 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 allows you to combine them in such a ratio that provides the lowest production costs and the highest profit. The amount of resources used by a 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 as long as each additional resource will increase income more than costs. Suppose the firm uses only one temporary resource, for example, labor or a particular type of equipment). The increase in output in physical terms, provided by increasing this resource per 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 yield of the resource or revenue from the marginal product (MRP). The increase in costs due to the introduction of an additional unit of a variable resource into production is called the marginal resource cost (MRC). When a firm operates in perfect competition on the resource market, its marginal resource costs will be equal to the price of this resource: MRC \u003d P. The principle of the firm's choice of the amount of resource used is similar to the principle of determining the optimal positive volume of output. It will be profitable for the firm to increase the amount of the resource used to the point where its marginal profitability will be equal to its marginal cost: MRP \u003d MRC, or for a competitive resource market MRP \u003d P. In practice, each firm is faced with a situation where several resources are variable, and it is necessary to choose in what combination to use them. At the same time, of all the options for combining the resources used, with which it is possible to produce a given amount of 48 finished products, 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 \u003d MRPB / PB, where MPRA, MRPB are the marginal profitability of resources A and B; RA, PB - prices of resources A and B. Obviously, if MPRA / RA is greater than MRPB / PB, it is advisable to transfer costs, reducing them by resource A and, accordingly, increasing 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 production can be achieved. There are various levels of production at which a firm can produce a product at the lowest cost. But there is only one volume of output that maximizes profits. To determine this volume of output, it is necessary to apply the profit maximization rule: MRPА / PA \u003d MRPВ / PB \u003d 1. Thus, when using resources in competitive markets, a firm implements a profit-maximizing combination of resources if each input factor of production is used up to the point at which it the marginal yield is equal to its price: MRPА \u003d RA; MRPB \u003d PB. Market demand for a resource is the sum of the demand presented by all firms in various industries that use a given resource in the production process. Given that there are many consumers of this resource in industries, and the demand for it depends on the demand for finished goods, the market demand for the 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 that can be presented on the markets at the current prices. In 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 offer largely depends on the specifics of each specific resource as an economic good for the implementation of production activities in order to generate income. In general, the features of the supply are due to the scarcity, limited economic resources, and above all such as land, labor, natural resources. The scarcity of primary economic resources is relative. They are rare and limited in comparison with the need of production for them to produce the final goods necessary 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 positions: - labor is a commodity and is sold at its value or "natural price of labor"; - the natural price of labor is determined by the minimum costs of its reproduction, which corresponds to the minimum means of subsistence of the worker; - 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 the representatives of Marxism, cannot be a commodity. In the market, the owner of the capital is actually opposed not by labor, but by the employee who offers his labor force, i.e. ability to work. Therefore, wages are a converted form of the value and price of labor power as a special kind of commodity. The concept of "converted form" is used to show that under the conditions of capitalist relations, wages outwardly appear as wages for labor, thereby distorting and masking their essence. Thus, Marxist economic theory proves that wages fluctuate around the cost of labor, which, in turn, is determined by the value of the benefits of life 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 "wages" 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 an employee for his daily, weekly, monthly work. Real wages are nominal wages cleared of inflation. It is characterized by the number 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 demand and supply of labor in the market. Consider the functioning of this labor market in conditions of perfect competition. First of all, we note that the subjects of demand in the labor market are business and the state, and the subjects of supply are households. In the market of perfect competition, the amount of hired labor employed by entrepreneurs will be determined by two main indicators - real wages and marginal profitability. With an increase in the number of hired workers, other things being equal, 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 of the resource (MRP \u003d MRC). Therefore, the employer will stop attracting an additional unit of labor when the marginal profitability of labor equals the value of real wages (MRPL \u003d W). Labor demand is inversely related to wages. With an increase in wages, other things being equal, the entrepreneur, in order to maintain equilibrium, must accordingly reduce the demand for labor, and with a decrease in wages, the demand for labor increases.

But the dependence is different here. As a rule, sellers in the labor market in conditions of perfect competition tend to increase the supply with an increase in wages. Therefore, the labor supply curve (Figure 5.2) takes on a different form than the labor demand curve. 50 The labor supply curve shows that with an increase in real wages, the supply of labor increases, and with a decrease, the supply of labor decreases. 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 working-age population; the amount of time worked per year; qualitative parameters of labor, its qualifications, productivity, specialization. The labor supply curve in Figure 5.2 characterizes the total labor supply in the economy. The individual labor supply (of an individual or of a certain group of workers) can be characterized by a curve that has a different configuration. Now let's combine both graphs - the demand curve and the supply curve - and analyze in more detail the situation on the labor market.

Excess labor supply LE LS1 DL SL Labor price, i.e. wages in the labor market are established as a competitive equilibrium of supply and demand for various categories of workers, types of work, etc. At point E, the demand for labor is equal to the supply of labor. This point on the graph corresponds to a certain level of real wages (WE) and the labor supply set by this level (LE). In a state 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 WE wages find jobs. In this sense, the market equilibrium point E determines the position of full employment. At any value of wages other than WE, the equilibrium in the labor market is disturbed. Wages (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. Unemployment arises. In the case of a decrease in real wages in comparison with the equilibrium (for example, to the level of W2), the demand in the labor market (0 - L D2) exceeds the 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 stable, they are subject to correction by the market mechanism in the direction of restoring the position of full employment. Above, we proceeded from the average wage level, which is formed as a result of the interaction of labor demand and labor supply.

Differentiation of wages is a consequence of differences in abilities (inborn and acquired), educational level (general and special), professional training, experience and, ultimately, qualifications, which different categories of workers have. In addition, different types of work differ significantly in their attractiveness. Inconvenience in work, the harmful nature of production must be compensated for by wages. Differences in wages that are intended simply to compensate for the shortcomings of certain jobs are called equalization differences. Differentiation in the size 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 qualifications, any investment in human capital increase the opportunities for obtaining higher wages. The labor market has several models - competitive, monopsony, 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 and purchase of labor.

In a monopsony market, the scale of demand and the price level are determined by the buyer, in the monopoly (trade union) market, by the seller of labor. Above, we examined the mechanism of the competitive labor market. However, perfect competition in the labor market is the exception rather than the rule. Imperfect competition is common in most markets. Its extreme case is monopsony (from the Greek monos - one and opsoma - the purchase of food; a market in which one buyer of goods, services, resources operates). This situation is often encountered in small cities, where the city's economy is almost entirely dependent on one large firm, providing jobs for the bulk of the population. In this case, the firm 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 employees hired. 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 an employer on behalf of and on behalf of its members. The union's goal is to maximize the wages of its members, improve their working conditions and receive additional payments and benefits. A union can operate in 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 a political lobby, etc.), as well as an increase in the efficiency and quality of labor.

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

Land market and land rent

All natural resources (fertile soil, fresh water reserves, mineral deposits) are called "earth" in economic theory. In this section, for simplicity, the word "land" will mean only the soil surface that 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 the supply of labor or the supply of capital, since the last two factors of production are freely reproducible. Specific factors affecting 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 completely 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 the land becomes involved in economic circulation (at a given level of development of technology and technology), we will have to move from the best in fertility lands 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 and livestock products, etc. The demand for land takes into account the level of soil fertility and the possibility of its increase, as well as location - the degree of distance 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, land 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, and rent acts as a flow. 53 Consider first the rent that all land owners receive, regardless of its quality. Karl 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 their own purposes.
2. Separation of land as an object of economy from land as an object of ownership, i.e. all land is rented in a completely competitive market.
3. All land is used for the production of staple food.
4. All lands are of the same quality, equally productive. The principle of establishing rent, or rent (neoclassicists often use the two 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, meaning the level of land rent per hectare of land. The area of \u200b\u200bthe rectangle ORAAQ1 represents the aggregate absolute rent for all 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 fertility and in position, which determines its different productivity. Let us assume that there are three plots of land - I, II, III, differing in natural fertility (the largest - on site I, the smallest - on site III).

This means that the owner of this plot of land will receive a differential rent, the size of which is equal to the area of \u200b\u200bthe shaded rectangle. The owner of plot II, in which the average production costs are higher, will receive a smaller amount of rent. Finally, the owner of plot III will not receive differential rent at all. Thus, the worst land (section III) will give its owner only absolute rent, and the average (section II) and the best (section I), along with absolute rent, will also give differential rent.

So, differential land rent is the income received as a result of the use of limited land resources of higher productivity in a situation where these resources are ranked (in this case, by land fertility). The ranking of land plots can also be carried out by location in relation to the sales market for agricultural products. The fertility of the land is not given once and for all. It can be improved or worsened as a result of land management. Artificial fertility can be added to natural fertility. The additional return on capital investment can increase labor productivity, lower it or keep it at the same level. In the event that additional capital investments lead to an increase in production efficiency, they talk about an increasing additional return. Then, when the lease is renegotiated, the rent will also increase. In the event that additional capital investments lead to a general drop in production efficiency, one speaks of a decreasing additional return. At the same time, the rent will decrease. If the additional capital investment 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's say that some piece of land brings in annually R $ rent. What could be the price of this piece of land?

To answer this question is to determine the opportunity cost for the land owner. The price of the land should represent the amount of money that, if deposited in the bank, the former owner of the land would receive a similar percentage on the capital invested. The considered definition of the price of land is theoretical. In practice, the price of land depends on many factors that influence the supply and demand 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 views 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 surplus value created? Consuming the means of production, the hired worker in the production process creates a new use value with his concrete labor and at the same time transfers to the manufactured product the value of the expended means of production. 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 the worker, creating new value, not only reproduce the equivalent of the value of his labor power, but also create surplus value? 55 Having paid for the value of the commodity "labor power", the capitalist acquires the right to dispose of its use-value at his own discretion. By forcing the worker to work for a longer time than is necessary to reproduce the equivalent of the value of the commodity "labor power", the capitalist receives surplus value. Thus, surplus value is a specific form of the 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 relationship of bourgeois society, the relationship between its main classes - capitalists and employees, the exploitation of employees by capitalists. Consequently, from the point of view of Marxist political economy, capital is not a thing, but a certain production ratio that is represented in a thing. Western economic theory under capital usually means assets that have two characteristics: 1) they are the result of investment; 2) generate an income stream 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, securities, investments in knowledge, and a stock of material wealth can be called capital. 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 (an 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 increase the productivity of his work. Human capital is a measure of the person's ability to generate income. Considering capital as a factor of production, economists talk about physical capital. It is a 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 homes), equipment (consumer durables such as cars and manufactured durables such as machines and computers), and inventories, i.e. stocks 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 is physically or morally worn out (the latter means the depreciation of fixed capital as its production becomes cheaper or with the start of production of machinery and equipment of a fundamentally new quality, which makes the use of old fixed capital technically and economically unprofitable). Each year, the owner of the fixed capital writes off a certain part of its value (makes depreciation deductions). For example, if a machine costs $ 10,000 and lasts 10 years, then on a straight-line basis, the annual depreciation charge will be $ 1,000 per year. Working capital is fully consumed during one production cycle, and its value is included in production costs as a whole, in contrast to fixed capital, the cost of which is taken into account in costs in parts (in the amount of depreciation deductions). Capital, like labor, has productivity, since it can help you get more output (or increase your income). But if the factor labor appears as a phenomenon created outside the economic system, then capital goods appear as a factor produced by the economic system itself. Net capital productivity can be represented as the ratio of annual net income (annual gross income minus costs) to the amount of capital invested, expressed as a percentage. The net productivity of capital presented in this way 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 its productivity, capital is therefore in demand from entrepreneurs. Capital demand can be represented graphically as a curve with a negative slope. It is a reflection of the marginal return on equity. The negative slope of the demand curve for capital indicates that the marginal income, and therefore the marginal return on capital, decreases as the stock or amount of capital invested increases. This dependence is explained by the action of the law of diminishing profitability (return) known to us, 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 capital stock inherited from the past, can be graphically depicted 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 position. In pursuit of the goal of increasing the volume 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 the fact that in the future the quantity of goods will increase and, as a consequence, 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 are needed - 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 does the investment funds needed to create capital come from? Someone must 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; putting money in savings accounts, investing them in pension funds, etc.) ).

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

By making savings, people expect to receive income. This income is the interest rate (lending rate), or finance income for funds. The interest rate is the price paid to the lender (owner of the funds) for the use of his funds over a certain period of time; interest rates are set in the form of a certain interest income for the year. Thus, the demand for capital and the supply of capital on the surface of economic reality take the form of the demand for investment funds and the supply of investment funds.

The demand curve for investment funds shows that, other things being equal, business 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, other things being equal, to an increase in the supply of funds in this market. Equilibrium is established in the capital market at the intersection of the DС and SC curves. At point A, the marginal return and the marginal alternative cost of capital coincide; the demand for investment funds coincides with their supply. In this state of 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 the offer of investment funds. Thus, in 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 interest rate, firms will refuse to borrow funds to finance their investments; at any lower interest rate, firms will compete intensely for too scarce capital. Only when the interest rate is in equilibrium will supply and demand be balanced. The market interest rate 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 investment areas that bring the highest returns. 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 encourages people to give up some of their current consumption in order to increase their capital stock.
3. The market interest rate 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 inflation-adjusted interest rate, i.e. expressed in constant purchasing power monetary units, it is defined 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 flat rate of interest. However, the real competition is far from perfect. Therefore, even in a developed market economy, there is a wide range of rates. The amount of the interest rate depends on the degree of risk; urgency (short-term loans, medium-term and long-term), loan size, taxation system (the presence or absence of benefits for certain categories of loans); capital market structures, etc. Test questions 1. What are the fundamental differences between the labor market and other markets for productive resources and explain how equilibrium is achieved there. 2. Explain the mechanism of formation of differential rent. 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 determine the price of land in practice?

The market of production factors and the formation of factor income. Factor Markets and Factor Income Formation Factor Market and Income Generation

Profit as an entrepreneur's factor income

Wages as the price of labor

Land rent - landowner's factor income

Profit as an entrepreneur's factor income

Wages as the price of labor

National economy as a system

Characteristics of macroeconomic indicators

The last

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