Diagrama

National Income

Factors of production

Labor

Capital

Is the time people spend

working.

Is the

set of tools that workers use.

Production Function

Y = F(K, L).

This equation states that output is a function of the amount of capital and the

amount of labor.

Distribution of national income to the factors of productions

Factor prices

Are the amounts paid to the factors of production. In an economy where the two factors of production are capital and labor, the two factor prices are the wage workers earn and the rent the owners of capital collect.

Competitive firm

is small relative to the markets in which it trades, so it has

little infl uence on market prices.

The Marginal Product of Labor

The more labor the fi rm employs, the more output it produces. The marginal product of labor (MPL) is the extra amount of output the firm gets from one extra unit of labor, holding the amount of capital fixed.

What determines the demand for goods and services

Consumption

All forms of consumption together make up about two-thirds of GDP. Because consumption is so large, macroeconomists have devoted much energy to studying how households make their consumption decisions.

Investment

The quantity of investment goods demanded depends on the interest rate, which measures the cost of the funds used to fi ance investment. For an investment project to be profi table, its return (the revenue from increased future production of goods and services) must exceed its cost (the payments for borrowed funds).

Diego Cárdenas

3 ° D