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Lecture Plan
• Objectives
• Introduction
• Wage
– Demand and Supply of Labour
– Marginal Productivity Theory
– Other Theories of Wages
• Interest
– Time Preference Theory
– Loanable Funds Theory
– Liquidity Preference Theory
• Rent
– Ricardian Theory of Rent
– Modern Theory of Rent
• Profit
– Theories of Profit
• Summary
Chapter Objectives
• Hence:
Other Theories of Wages
Bargaining Theory of Wages
• Based on negotiations between employers and unions.
• Labour and employer, have conflicting objectives.
– Each wants the maximum share of firm’s profits and each side
is aware of the costs and risks of a strike.
• Equilibrium is achieved like one in a game theory problem.
r r1
2
E
r r
L1
1 r2 L
L O O
L2
O Quantity of M Quantity of money
M M1 Quantity of M
money money
Demand
2 for Money Supply for Money Equilibrium Rate of
Interest
MCB
MCA
Price,
MCC
Revenue,
ACB ACC
Cost
ACA
BA BB BC
P AR=MR=P
RB
EB
RA
EA
O
QA Quantity QB Quantity QC Quantity