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Money-income determination
- Resource prices = major determinant of household income
- Expenditures (for firms): wages, rent, interest, profit income = income for households
Cost-minimization
- Resource prices are costs (for firms)
- Firms must maximize profit at level of output w/ least costly combination of resources
- Cost = main determinant of quantity of land, labor, capital and entrepreneurial talent employed in production
Resource allocation
- Allocate resources among firms and industries
- Produce shift of resources from use to another
Policy issues
- The resource market can determine what kind of policy the government makes
- Debated issues:
- Redistribution of income through taxes + transfers
- Discouragement of “excess” pay to corporate executives
- Increase in legal min. wage, subsides
- Labor unions
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