A Final Word
This chapter has examined the operation of factor markets. You should
now be able to answer the questions we posed in the opening paragraph.
Here are some of the key points for two of those questions.
What explains why neurosurgeons are usually paid more than family
doctors? Part of the answer is that to be a neurosurgeon requires more
years of costly specialized training than that needed to be a family doctor.
Since that extra training is costly and time-consuming, it is not surprising
that fewer people are willing or able to become neurosurgeons than
family doctors. This lower supply for neurosurgeons, other things being
equal, leads to a higher equilibrium wage.
Why does a hectare of farmland in Northern Saskatchewan rent for far
less than a hectare of land in downtown Toronto? To answer this, just
think about the alternative uses for the farm land, and compare them with
the alternative uses for the hectare in downtown Toronto. The hectare of
farmland has very few alternative uses. Or, more correctly, it has many
alternative uses, but there is little demand to use that particular piece of
land to build a skyscraper, shopping mall, or baseball stadium. But one
hectare of land in downtown Toronto has many alternative uses—there is
almost always demand for additional space for parking garages, office
buildings, retail stores, and many other things. Since the piece of
farmland in Saskatchewan must stay where it is, its rental price is