The resources used to produce goods and services: labor, land, physical capital, and human capital.

Manufactured resources such as buildings, machinery, and equipment used to produce other goods and services.

The education, skills, and knowledge embodied in workers that raise their productivity.

Demand for a factor of production that arises from, and depends on, the demand for the goods the factor helps produce.

How an economy's total income is divided among the different factors of production, such as wages to labor and returns to land and capital.

The extra revenue a firm earns from employing one more unit of a factor, equal to the factor's marginal product times the price of the output.

A graph of the value of the marginal product at each quantity of a factor; it is the firm's demand curve for that factor and slopes downward because of diminishing returns.

A firm maximizes profit by employing each factor up to the quantity at which its value of the marginal product equals its price, such as the wage for labor.

The cost of using a unit of a factor such as land or capital for a period of time.

The idea that in competitive markets each factor of production is paid a price equal to its equilibrium value of the marginal product.

A worker's decision about how to divide available time between paid work and other uses.

Time spent not working, which a worker must give up in order to earn income.

A curve showing how many hours a worker chooses to supply at each possible wage rate.

At sufficiently high wages a further raise can reduce hours worked, because the income effect of wanting more leisure outweighs the substitution effect.

The additional revenue a firm gains from hiring one more worker; for a price-taking firm it equals the value of the marginal product of labor.

The additional cost to a firm of employing one more unit of labor.

A market with a single buyer, called a monopsonist, such as the only employer in a town, which can push the wage below the competitive level.

A firm produces a given output at least cost by choosing inputs so that the marginal product per dollar spent is the same for every input.

Wage differences that offset the nonmonetary features of jobs, such as higher pay for dangerous or unpleasant work.

Pay gaps arise from compensating differentials, differences in talent, experience, and human capital, and market interference such as unions and efficiency wages.

Organizations of workers that bargain collectively with employers over wages and working conditions, typically raising members' pay.

The idea that employers may deliberately pay above-market wages to raise worker effort, cut turnover, and attract better workers, which can create wage disparities.

Discrimination remains a genuine source of wage differences; competitive markets tend to erode it, but it can persist through labor-market frictions or, historically, government policy.

In 1914 Henry Ford more than doubled his workers' pay to five dollars a day, sharply cutting turnover and raising output, a famous real-world case of efficiency wages.