Factors of Production, Labor Market, and Financial Concepts

Factors of Production

673 Why is the demand for factors considered a joint application? Because several factors must be used jointly and in coordination to develop products.

Labor Market

677 Why is labor demand conditioned by labor productivity? A company can only hire an additional worker if the value of the marginal product of labor exceeds its wage; that is, if the value of increased production exceeds its cost.

679 What is the activity rate? The proportion of persons of working age who are either employed or seeking employment.

680 What are the main labor market imperfections?

• a) The bargaining power of unions and employers' associations
• b) The heterogeneity of labor
• c) Lack of market transparency
• d) Labor is not a perfectly mobile factor

Natural Resources and Rent

681 What is ground rent? It is the price or remuneration for the use of natural resources, unless the owner permits others to exploit them.

684 Why does the supply of natural resources for a particular use have a curved shape? Because land can be subject to alternative uses. If the price of rice increases relative to other products, producers will want to produce more rice and less of other products. This increases the demand for land for rice, and its income will rise. This indicates an increase in the supply of land for rice, as long as there is land available for alternative uses.

Financial Concepts

Financial Funds

686 Own Financial Funds. What are they? How are they provided? Can they be returned? They are provided by the company owners, either directly or by forgoing profits and allowing them to remain in the company for self-financing. Barring special circumstances, such as liquidation, these funds must be returned eventually.

687 Foreign Financial Funds. What are they? Are they paid? Will they be returned? These are various types of loans that must be repaid with interest upon maturity.

Interest Rates

688 Reasons for requiring interest or a return on investment:

• a) Compensation for forgoing the use of funds during the loan period
• b) The existence of inflation
• c) Every loan carries a risk

689 Components of the interest rate on any loan:

• a) A pure interest rate for the consumer's resignation during the loan period
• b) A risk premium for the risk of default
• c) An inflation premium to ensure profitability in real terms

690 Relationship between the interest rate and loan duration: In principle, the interest rate is higher for longer durations because the risk is higher.

Investment Analysis

691 What must a company analyze before making any investment? That the expected return on investment is higher than the cost of funding it.

692 How are the demand and supply curves for loanable funds shaped? The demand curve for loanable funds is decreasing. The supply curve of loanable funds is increasing.

Employer Theories

695 Theory of Employer Risk: Considers that the benefit is paid to the employer for the risk taken in creating a company with financial resources.

696 Theory of Employer Control: Maintains that the entrepreneurial role is to coordinate and control the factors with which the company operates. Without such coordination, the company would not exist. The benefit is considered rightful wages for the development of this function.