Ch. 13 Summary

In input markets, the supply side consists of individual owners of resources whereas firms, as employers of resources, constitute the demand side. 
The owner of any resource must decide between offering it on the market to obtain income or retaining it for personal reservation uses. To maximize utility, a price-taking resource owner would equate his personal marginal rate of substitution (MRS) in resource supply to the hire-price of the resource. Changes in the hire-price have both an income effect and a substitution effect upon the supply of input. These work in opposite directions, so that the supply surve of a resource may have a backward-bending range. 
A principal-agent problem arises when the firm (the principal) cannot perfectly monitor an employee (the agent). One solution is a two-part pay scheme: the employee is paid his marginal revenue product, but only after making a fixed lump-sum payment to the firm. OR there might be payment by piece instead of by the hour. This gives rise to the incentive to signal ability to a hiring principal. 
In a competitive factor market, the equilibrium hire-price and quantity for any input are found at the intersection of the market supply and demand curves. Demand for inputs tends to rise with technological progress, with higher consumer demand for final products, and with increased supply of cooperating inputs. Increased wealth increases the overall ability of a resource but can also induce people to retain more for reservation uses, thereby reducing supply.
A traditional classification divides resources into the categories of land (resources given by Nature), capital (resources provided by human sacrifice and saving), and labor (the human resource itself). But a more economically meaningful distinction is between productive services (employee-hour of labor or acre-year of land) and the sources of these services. For any resource A, the relation between the price or capital value of the source \(P_a\) and the hire price \(h_a\) defines the rate of return, \(ROR_a\), after adjusting for possible appreciation or depreciation during the hiring period. So if \(P_a\) is teh price of the asset, \(ROR_a \equiv \frac{(h_a + \Delta P_a)}{P_a}\)
Economic rent is the excess of what a resource-owner receives in the market over the minimum required to draw the resource away from reservation uses. Economic rent is smaller the greater is the range of alternative considered. 

Ch. 15 Summary

Ch. 16 Summary