Page 330 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-20: Macroeconomic Theories of Distribution

Assumptions of Theory Notes

(i) Whole land is used for production of cereal and working powers engage in agriculture fixes
the distribution in industry.
(ii) The rule of decrease of production on land is regulated.
(iii) Supply on land is unchangeable
(iv) Labour and capital can be reduced or increased.
(v) Demand of cereals is totally inelastic so rise in price or distribution supply does not affect
demand.
(vi) Wages are given to labours according to their standard of living.
(vii) There is nothing progress in technical knowledge and art of agriculture.
(viii) Rate of wages is constant and already fixed.
(ix) Demand of labour depends on quantity of capital deposit.
(x) There is totally competition in market.
(xi) Both demand of labour and distribution are free from production limit means maximum
production limit does not affect demand supply.

Self Assessment

Fill in the blanks:
1. The rule of ......................... is applied on production on land.
2. There is totally ......................... in market.
3. Fulfill on land is ........................ .

Analysis of Theory

Ricardo’s Revenue Distribution theory is based mainly on two theories which are extra marginal and
surplus theory. The marginal theory is used for determination of taxes in national productivity and the
excess theory is used to distribution of wages, profit etc. from rest of the production.
The factors of production can be determined if the cereals grow is fixed. The unit of labour is the
difference between the average taxes of labour and marginal production it means total taxes are the
differences of average production of labour and marginal production x the quantity of labour and
capital investment on land. Profit is nothing but marginal production of labour and rate of wages.
The wages of labour is determined by labour capital x number of labour. Thus the first owner of this
production of cereals is landlord and later comes labour and others.
By given figure, we can clarify taxes, cost profit or portion of national production.
In this figure on x-axis labour work and land and on y-axis agriculture production are shown. AP
and MP are respectively average labour and productivity curve. Suppose that OM labour is used in
agriculture then maximum production of labour is MP and average production MD is the difference in
maximum and average production in labour to PD and total

Production = OMDC
Its tax = CD + PB = CDPB
Wages = OM + KW = OWKM
Profit = BP + KW = BPKW

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