Topic 7. Markets of factors of production
 
1. Markets of factors of production and its features
2. Labor market. Essence and types of wages
3. Land rent and its forms. The price of land
4. Percent as a form of income by capital
 
1. Factors of production factors and its features
The market of factors of production is the scope of the commodity turnover of such important resources as land, capital and labor. In the markets of factors of production, the same laws of demand and proposals and the same mechanism of competitive equilibrium of prices are valid. And at the same time, the markets of these commodity groups have their own characteristics. A specific line of demand for any production factors is that it has a derivative, secondary nature compared to the demand for final consumer benefits.
The derivative nature of demand for production factors is explained by the fact that the need for them arises only if they can use goods or services of ordinary consumer purposes with their help. Demand for any production factor can increase or decrease depending on whether the demand for consumer goods made using this factor of production increases or decreases 
The proposal of factors of production is their number that can be presented in the markets at the current prices. In the markets of factors of production, demand gives rise to supply in the same way as in the markets of ordinary consumer goods. However, the offer in the markets of factors of production has features. The specifics of the proposal is due to the rarity, limitations of economic resources.Thus, a feature of the market for the supply of factors of production is that it experiences the law of the rarity of resources.
 
Labor market. Essence and types of wages
The labor market is a system of economic mechanisms, norms and institutions that establish connections between firms that present the demand for labor, and the proposal of labor by the population. The subjects of the labor market are: employees and employers, intermediaries between them (employment services), representatives of authorities and trade unions.
Labor brings income called wages. With the equality of supply and demand for labor, the equilibrium level of wages is formed. The growth of labor demand increases wages. The fall in demand for labor reduces it. In turn, the demand for labor is determined by the limiting product, that is, the increase in the product with an increase in employment per employee: if the maximum product from the use of labor is higher than from the use of other factors, then the demand for labor increases, and vice versa. The labor supply is influenced by:
• number in the country of the able -bodied population;
• duration of the working day;
• Level of qualification and professional training of the population.
Distinguish between nominal and real wages.
The nominal refers to the amount of the money that the employee receives for his work. Real wages are measured by a mass of life goods and services that can be purchased for the money received. 
Salary exists in two forms - time -based and piece (piecework). Time wages are determined by labor duration. Her measure is the payment of the hour of labor.With a scheduled (piecework) payment of earnings, depending on the amount of the product manufactured. Its size is determined by multiplying the prices for one product by the number of products.
In a market economy, trade unions have a great influence on the level of wages.
Ways to influence trade unions on wages.
The restriction of labor supply, which is achieved: restriction of working time with the help of legislation, prohibition of hiring not members of the trade union, limiting the load and labor intensity.
Pressure on entrepreneurs when concluding collective agreements in the direction of raising the wage rate.
Promoting the growth of those types of production that cause the demand for labor and thereby the growth of wages.
The fight against the monopolization of production. It is known that the monopoly seeks to increase prices by reducing production, which negatively affects the level of wages. Speech against the monopoly restrains the tendency to fall wages.
 
Earth market. Land rent. The price of land
Land rent is a fee for the use of land and other natural resources, the offer of which is constantly. For the owner of the land, rent is income, for the user land is consumption. Earth is a resource that is not produced, but exists as a natural object (agricultural land, non -agricultural land, natural fossils, forests, etc.). As a natural object and factor of production, the Earth is irrelevant, quantitatively limited, different, imperishable and characterized by a long period of use. 
The supply of the Earth is inelastic, so the price of land services (rent) is entirely determined by the demand for the Earth. Demand for land depends on the productivity (productivity) of the Earth and on demand for products produced using land. The curve of land demand has a negative slope due to the action of the law of reducing maximum performance.

    
By the nature of the formation of the rent, there are three main forms: differential, absolute and monopoly.
Differential land rent arose as a result of the limited land, which led to the monopoly possession of its individual owners. There are two forms of differential rent.
Differtial rent I arises in connection with the difference in land by fertility and location of the land plot from sales markets. Soil fertility, climatic conditions (precipitation, air temperature), distinguish between land by performance, which affects the demand for the Earth and establishing rents for the benefit of this plot. The location is reflected in the formation of land rent. Over the same equal conditions, rent per unit of land will be higher if the leased plot is favorably laid in relation to the sales markets, the hiring of work, etc.Differential rent II arises from various effectiveness of consistent investments and capital in the production of agricultural products. Additional investments of the KA have contribute to increasing the productivity of labor and the efficiency of land use, which bring additional profit, i.e., artificial (outside of fertilizers, the implementation of reclamation, etc.) is added to natural fertility, which increases the production of products without expanding land plots.
There are differences between the differential rent of I and II.
• Differential rent I arises subject to the constant expansion of the processed areas. Created in the process of production, it is completely assigned by the owner of the Earth. 
• Differential rent II is created in the process of intensification of production, which is built on the introduction of modern equipment and technology. Unlike differential annuity I Dif, Ferencial Rent II is between the owner of the Earth and its tenant, depending on the share of invested capital.
Monopoly rent is based on the monopoly law of land ownership. It implies a rarity of a special grape variety, which is a raw material for unique wine; White oil, going for the manufacture of individual drugs; Special, unique to the pre -lands “Narzan”, “Krajinka”, “Essentuki”, etc. Rare, the uniqueness of the goods allows the owner to sell it at monopolistic prices, as a result of which a superpowity appears, which is the basis of monopoly rents and is assigned to the nickname of a unique area. 
Absolute rent follows from the monopoly law of the owner of the Earth.Only he was given the right to dispose of the land legally assigned to him. The owner can lease the land at his discretion for agricultural production, mining, for construction, etc. Each owner of the land receives absolute rent.
In a market economy, the Earth is an object of sale and has a price. The landowner seeks to sell it for such an amount (price), which, if put in the bank, will bring the annual percentage equal to the annual rent.
Therefore, the price of land depends on two values:
the size of land rent, which can be obtained by becoming the owner of the land;
Loan interest rates.
4. Percent as a form of income by capital
Capital in the market of factors of production is understood as physical capital, or production funds. The latter can be called capital benefits. Capital benefits include, firstly, residential buildings; secondly, production facilities, machines, equipment, infrastructure; Thirdly, inventories.
Capital in a broad sense can be defined as a value that brings the flow of income. From this point of view, capital funds of the enterprise, and land, securities, and a deposit in a commercial bank, and “human capital” (accumulated professional knowledge), etc. can be called capital. All of the listed benefits bring the flow of income in various forms: in the form of rent, interest payments on deposits, dividends on securities, land rent, etc. 
Thus, we can talk about the three segments of the capital market: firstly, about the market for capital goods where production funds are bought and sold; Secondly, about the market for capital services, where these funds can be rented for a fee. For the purchase and sale of capital goods, subjects require funds. Consequently, thirdly, one more segment of the capital market can be distinguished-the borrowed funds market, or loan capital. The income generated by loan capital is called percentage. A loan percentage is the price of loan capital. The fee for using loan capital is expressed through a percentage rate, which is measured by the ratio of annual income received on loan capital, to all loan capital.
The income of loan capital, expressed in annual interest, they call a percentage rate. The level of interest rate is determined by the ratio of supply and demand for financial resources. 
There are nominal and real interest rates. The nominal is a bet expressed in a monetary unit (rub., Dollars) at its rate. Real is the interest rate taking into account inflation.The rate of bets can fluctuate depending on the following factors.
Risk. The more chance that the borrower will not pay the loan, the greater the loan percentage will be charged by the creditor.
Urgency. Long-term loans are usually issued at higher interest rates than short-term, as long-term lenders can bear financial damage due to the abandonment of the alternative use of their money.
The size of the loan. As a rule, a percentage rate is higher for a smaller loan. The reason is that the administrative expenses of a large and small loans almost coincide.
An important role in making investment decisions is played by the definition of today's value of future benefits, or the discount process. The same amount of money today and in a year has different value, since today this money can be put in the bank and in a year this amount will increase by the market rate of interest.

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