No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Seven: Production: Man at Work 174 CHAPTER SEVEN ANSWERS 1. A. Land: could include any raw material from nature (iron ore, aluminum, timber, 40 acres of downtown real estate). B. Labor: could include the Chief Executive Officer of a corporation down to the janitor, to the small business owner. C. Capital (machine tools, factories, software and IT infrastructure. D. Entrepreneurship (just name any two entrepreneurs—we’ll learn more about entrepreneurship in chapter 9). 2. This is a question that shows the sometimes arbitrary classification of things, and an illustration of why most of our economics is a framework for thinking rather than a black/white answer. Nucor recycles steel, so they actually melt it down and pour it out in their mills, and shape it into a final product. Yet, they aren’t a miner digging ore out of the ground. They probably span the categories from the right edge of “raw materials” all the way to wholesale (since they sell finished products). For many people, purchases of raw steel are consumption goods, since the final user of the product purchases it. Yet many businesses have accounts with Home Depot and Lowes such that their purchases are as wholesale goods. The point is that the classification of any good depends on the plans of the purchaser. 3. An entrepreneur that wants to maximize profit (which is necessary over the long run, otherwise they’ll be overtaken by another competitor) will want to equalize the return from each factor per dollar spent. The entrepreneur must determine the production quantity by equating marginal revenue to marginal cost (profit max condition) and then equalize the contribution to output per dollar spent by each factor. 4. At the margin, oxen are now cheaper relative to humans to haul material. One would expect that fewer people would be used in production and an increase in beasts of burden. 5. It will likely fall, since the firm will want to equalize the contribution to output per dollar spent across all factors of production. When unions bid up wages, labor is now relatively more expensive than capital equipment. Over time, this will lead to reduced labor and increased capital. 6. When we consider the differences in wages between a policeman and a sports figure, we can’t compare their relative contribution to output as in the previous questions. In this question, we need to consider where the demand for their services come from; it is derived from the value of the underlying activity, and then supply and demand forces within each particular labor market will determine the wage rate. That is, the market for entertainers is totally different from the market for policemen. From a biblical worldview, we know that every person is equally valued in God’s sight, independent of their remuneration from their vocation. The Bible