In 14th-century Europe, the bubonic plague wiped out about one-third of the population within a few years. This event, called the Black Death. provides a grisly natural experiment to test the theory of factor markets that we have just developed. Consider the effects of the Black Death on those who were lucky enough to survive. What do you think happened to the wages earned by workers and the rents earned by landowners?

To answer this question, let’s examine the effects of a reduced population on the marginal product of labor and the marginal product of land. With a smaller supply of workers, the marginal product of labor rises. (This is simply diminishing marginal product working in reverse.) Thus, we would expect the Black Death to raise wages. Because land and labor are used together in production, a smaller supply of workers also affects the market for land, the other major factor of production in medieval Europe. With fewer workers available to farm the land, an additional unit of land produced less additional output. In other words, the marginal product of land fell. Thus, we would expect the Black Death to lower rents.

In fact, both predictions are consistent with the historical evidence. Wages approximately doubled during this period, and rents declined 50 percent or more.Black Death led to economic prosperity for the peasant classes and reduced incomes for the landed classes.