Theory of Factor Pricing In Economics

 Theory of Factor Pricing In Economics

 According to Benham, "Wages means the amount paid to the labour for his services to the employer." According to P.M. Stohanic, "Wages is that labour's remun- eration which creates the utility." 

 Different types of wages are:

(a) Nominal wages 

(c) Minimum wages 

(b) Real wages (

d) The living wages 

 Money wages or nominal wages refer to the monetary form of wage payment. Or "Wages refer to that amount of money which a worker receives in exchange for the services rendered by him. 

 Real wages refer to the purchasing power of money wages or the real wages refer to all those advantages, concessions and facilities which are provided to a worker in addition to his nominal M

wages means the mini amount which an employer thinks necessary for the subsistence of life's preservation of efficiency of the worker. According to Fair Wages Committee, The minimum wage must also provide for some measure of education-medical requirement and amenities (easy pleasant)." 

According to the Committee on Fair Wages the living wages represent the highest level of the wages and include all amenities which a citizen living in a modern civilized society need. 

 Fair wages are wages which a labour get for his work just near to minimum wage, ie. living wage. Generally, the curent rate of wages being paid in the enterprise and are known as fair wages.) 

 That part of national income, which is paid to the capitalist for the use of liquid capital or loanable funds is known as interest. Some of its mnain definitions are:   

According to Meyers. "Interest is the price paid for the use of loanable funds According to Marshall. "Interest is the price for the use of capital in a market According to Keynes. "Interest is a reward for parting with the liquidity for a specified perjod. Itis quite clear from the above definitions that interestis a payment for the use of liquid canital 

Net interest is the amount which is paid to the capitalist purely for the use of capital. In thE words of Prof Chapman, "Net interest is a payment for the loan of capital, when no risk, no inconvenience (apart from that involved in saving) and no work entailed on the lender This payment is termed pure interest or economic interest. Thus, the reward purely for the use of capital only can be called as interest 

 The total payment made by a borroywer to the lender for the use of capital or loan is called as gross interest. According to Prof. ChapmanGross interest includes payment for the loan of capital payment to cover risk of loss, which may be personal risk or business risk, payment for inconveniences of the investment and payment for the work and worry involved in watching investment calling them in and investing") 

 (Profit is that part of national income which goes to entrepreneurs in the process of distribution Profit is paid at the last after the payment of rent wages and interest It is the difference between total revenue and total cost of product Thus profit is residual in nature. It is the only share of national income that can be negative. 

(a)FProfit is the reward for the work of entrepreneur (2013) or it is a payment of the risks, uncertainties and innovation." 

(b) Profit is commonly said to be a payment for risk becoming Thus it may be concluded that 

(a) Profit is a reward for accepting risk and uncertainties. 

(b) Profit can arise only under dy namic condition. 

(c) Profit can arise only in imperfect competition 

Gross profit is the difference between total revenue and explicit cost There are two types of Uy e uI sis00 

(a) Explicit Cost Explicit cost is the cost that is paid to the factor of production hired from outside-rent. wage and interest. (b) Implicit Cost Implicit cost means the reward of self-owned resources of entreprencur cost Gross profit = Total revenue - Explicit cost 

Net profit Gross profit - Implicit cost Net profit Total revenue - [Explicit Implicit cost) 

 

So far as demand side is concerned, the factor of production has no peculiarities or special features to offer. There is an almost complete similarity between the factor of production and a commodity. But this analogy comes to an end where we approach the supply side The supply of a commodity is much less elastic than the supply of a factor of production. Further it is possible to calculate the cost of production of a commodity, but it is not possible to estimate the cost of production of a unit of factor. 

Monopoly profit is the profit earned by a firm due to monopolistic condition when a firm operates under the conclusion of monopoly. 

 There are some circumstances in which a firm may earn extra profit. Such extra profit is known as windfall profit. Windfall profit arises because of unexpected circumstances ie shortage of production, unforeseen change in the demand of a commodity etc. 

Modern economists define rent as a reward for the use of all the factors of production. They are of the opinion that supply of all the factor of production is restricted in short run therefore these factors yield rent) According to John Robbinson, "Rent is the surplus earned by a particular part of a factor of production over and above the minimum earning necessary to include it to do its work KE Boulding, "Any payment to a unit of a factor of production in any industry in equilibrium which is an excess of the minimum amount necessary to keep that factor in its present position is rent." 

Q

When the term rent is used in daily life it means gross rent. Following elements are included in gross rent : 

(a) Payment for the use of land or economic rent. 

(b) Interest of capital invested for the improvement of land. 

(c) Reward of the risk accepted by landlord.

 (d) Reward for the management of land by landlord. 

Economic rent is a part of gross rent. It is a payment for use of land only. It d oes not include the payment of any other service. Therefore, it is known as real rent.

rent means a payment which is made to landlord for the use of any natural agent under an agreement contract rent may be equal or less than economic rent. 

Different rent is the rent which arises due to the difference in the fertility of different land Some lands are more fertile than others, production of more fertile land is the differential rent paid to them.

Net profit is also known as economic profit. It is a part of gross profit. Net profit is te ard of enterprise only. To calculate net profit, implicit cost are deducted from gross proft