VALEDICTORY THOUGHTS ON. FACTOR PRICES, EFFICIENCY, AND DISTRIBUTION

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VALEDICTORY THOUGHTS ON FACTOR PRICES, EFFICIENCY, AND DISTRIBUTION ‘;he recent reversal of fortunes of labor and capital with profits rising rapidly over. the last two . decades as wages-stagnated-s-raises questions about the fairness as w~ll as the efficiency of the distribution of income in a market economy, Economists emphasize that a free market in capital and land will promote high rates of saving […]

Returns to Labor and Capital

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Returns to Labor and Capital A final comparison, in Figure 14-7,shows the trends in labor and capital returns in the United States over the last 35 years. We see that labor’s earnings grew sharply but then.stagnated after the early 1970s. The rate of profit on capital, by contrast, has skyrocketed .in recent years, with a near-doubling of the rate of return […]

Returns on Different Assets

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Returns on Different Assets What are the actual real returns on investments in different forms?’ Table 14-2 shows a summary of recent studies on the return to capital in different fields. The rates of return on assets like corporate capital, farmland, and real estate have averaged around 6 percent over the last three decades. Because these assets can be packaged and […]

Uncertainty and Expectations

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Uncertainty and Expectations The final qualification concerns the risks that exist in investment.decisions. In real life no one has a crystal ball to read the future. All investments, resting as they do on estimates of future earnings, must about future costs and payoffs. Our discussion assumed that there were no risks. But in fact almost any loan or investment has […]

Technological Disturbances

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Technological Disturbances A deeper complexity involves technological change, Historical studies show that inventions and discoveries raise the return on capital and thereby affect equilibrium interest rates. Indeed, the tendency toward falling interest rates via diminishing returns has been’ just about canceled out by inventions and technological progress. Some economists (such as Joseph Schumpeter) have likened the investment process to a plucked string […]

Graphical Analysis of the Return on Capital

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Graphical Analysis of the Return on Capital We can illustrate capital theory by concentrating on a simple case in which all physical capital goods are alike. In addition, assume that the economy is in a steady state with no population growth or technological change. In Figure i4-5, Dl) shows the demand curve for the stock of capital; it plots the relationship […]

Determination of interest and the Return Capital

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Determination of interest and the Return on Capital We can use the classical theory of capital to under ‘stand the determination of the rate of interest. Households supply funds for investment by”abstaining from consumption and accumulating saving time. At the same time, businesses demand goods to combine with labor, land, and other inputs. In the end, a firm’s demand for […]

Diminishing Returns and the Demand for Capital

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Diminishing Returns and the Demand for Capital What happens when a nation sacrifices more and more of its consumption for capital accumulation and as production becomes more and more roundabout or indirect? We would expect the law of diminishing returns to set in. Let’s take the example, of computers. The first computers were expensive and used intensively. Three decades ago, scientists would eke […]