earned by the factor may rise or fall, depending on the elasticity of
demand for the factor.) Though the supply of any factor to a specific firm
may change suddenly, the supply to the economy as a whole tends to
change very gradually.
We now go on to explore two issues relating to factor pricing. First, what
explains the differences in payments received by different units of the
same factor, and can these differences be eliminated? Second, we explore
the important concept of economic rent.
Differentials in Factor Prices
Airline pilots typically get paid more than auto mechanics, and a hectare
of land in downtown Calgary rents for much more than a hectare of land
150 kilometres to the southwest in the Crowsnest Pass. Are such factor-
price differentials to be expected in well-functioning factor markets?
Consider labour markets. If all workers were the same, if the
attractiveness of all jobs were the same, and if workers moved freely
among markets, all workers would earn the same wage. Imagine what
would happen if wages were different across jobs that were very similar.
Workers would move from low-wage to high-wage jobs. The supply of
labour would fall in low-wage occupations and the resulting labour
shortage would tend to force those wages up. Conversely, the supply of
labour would increase in high-wage occupations and would force those
wages down. The movement would continue until there were no further