# Famous Figures and Diagrams in Economics

## Edited by Mark Blaug and Peter Lloyd

### Monograph Book

- Published in print:
- 29 Oct 2010

- ISBN:
- 9781848441606

- eISBN:
- 9781849806466

- Pages:
- 488

- Famous Figures and Diagrams in Economics
- Copyright
- Contents
- Figures
- Contributors
- Acknowledgements
- Introduction
- Basic Tools of Demand and Supply Curve Analysis
- Chapter 1: Marshallian Cross Diagrams
- Chapter 2: The Stability of Equilibrium
- Chapter 3: Indifference Curves and Isoquants
- Chapter 4: The Elasticity of Substitution
- Chapter 5: Substitution and Income Effects
- Chapter 6: Engel Curves
- Chapter 7: Homothetic Production and Utility Functions
- Chapter 8: Long-run and Short-run Cost Curves
- Chapter 9: The Product Exhaustion Theorem
- Chapter 10: Classification of Technical Change
- Chapter 11: Nash Equilibrium
- Welfare Economics
- Chapter 12: Consumer Surplus
- Chapter 13: The Harberger Triangle
- Chapter 14: Community Indifference Curves and the Scitovsky ‘Paradox’
- Chapter 15: The Taxation of External Costs
- Chapter 16: Monopoly and Price Discrimination
- Chapter 17: Duopoly Reaction Curves
- Chapter 18: Monopolistic Competition
- Chapter 19: Kinked Demand Curves
- Special Markets and Topics
- Chapter 20: Backward-bending Labour Supply Curves
- Chapter 21: Location Theory: The Contributions of von Thünen and Lösch
- Chapter 22: Hotelling’s Model of Spatial Competition
- Chapter 23: Cobweb Diagrams
- Chapter 24: Reswitching and Reversing in Capital Theory
- Chapter 25: The Markowitz Mean-variance Diagram
- Chapter 26: Rent-seeking Diagrams
- Chapter 27: The Logistic Growth Curve
- Chapter 28: Graph Theory and Networks
- Basic Tools of General Equilibrium Analysis
- Chapter 29: Circular Flow Diagrams
- Chapter 30: The Unit Simplex
- Chapter 31: The Edgeworth Box
- Chapter 32: The Role of Numbers in Competition
- Chapter 33: Production Possibility Frontiers
- Chapter 34: The Utility-Possibility Frontier
- Chapter 35: The Factor Price Frontier
- Chapter 36: Pareto Efficiency
- Chapter 37: The Phase Diagram Technique for Analyzing the Stability of Multiple-market Equilibrium
- Chapter 38: The Theory of Second Best and Third Best
- Open Economies
- Chapter 39: The Offer Curve
- Chapter 40: The Stolper-Samuelson Box
- Chapter 41: The Lerner Diagram
- Chapter 42: The Trade Theory Diagram
- Chapter 43: The Four-quadrant Diagram for the Two-sector Heckscher-Ohlin Model
- Chapter 44: The Integrated World Equilibrium Diagram
- Chapter 45: The Optimal Tariff
- Macroeconomic Analysis and Stabilisation
- Chapter 46: Keynesian Income Determination Diagrams
- Chapter 47: The IS-LM Diagram
- Chapter 48: The Fleming-Mundell Diagram
- Chapter 49: The Aggregate Demand Aggregate Supply Diagram
- Chapter 50: The Phillips Curve
- Chapter 51: The UV or Beveridge Curve
- Chapter 52: The Demand Curve for Money
- Chapter 53: Non-neutrality of Money
- Chapter 54: The Laffer Curve
- Growth, Income Distribution and Other Topics
- Chapter 55: Intertemporal Utility Maximization – the Fisher Diagram
- Chapter 56: The Diagrams of the Solow-Swan Growth Model
- Chapter 57: The Lorenz Curve
- Chapter 58: Kuznets Curves
- Index

# Chapter 9: The Product Exhaustion Theorem

#### Cassey Lee

### Monograph Chapter

- Published in print:
- 29 Oct 2010

- Category:
- Monograph Chapter

- Pages:
- (3 total)

## Extract

Cassey Lee There are many mathematical theorems that are associated with Leonhard Euler (1707–1783), one of the greatest mathematicians. One in particular found its way into economics, namely Euler’s work on homogeneous function of the first degree, which was applied in the theory of factor pricing and income distribution. In the 1880s, following Ricardo’s theory of rent, Clark (1889, 1891, 1899, 1901), P. Wicksteed and Wicksell argued that any variable factor input is paid its marginal product (Blaug 1997). This led to the formulation of the ‘Product Exhaustion Theorem’ which states that the total product is exhausted if each factor input is paid its marginal product. Wicksteed (1894) provided an early mathematical expression of the theorem but did not relate it to Euler’s work (Stigler 1941, fn.1, p.326). It was A.W. Flux (1894) who pointed out the theorem’s association with Euler’s work. Aside from the importance of the theorem to factor pricing, it is also widely used as a basis for a marginal productivity theory of income distribution. The simplest way to illustrate the theorem is by using a two-factor model. At the core of the theorem is an assumption that factor inputs such as labor (L) and capital (K) are each paid a price (PL and PK, respectively) that is equal to the value of its marginal product (MPL and MPK, respectively). If we assume that the total revenue (PQ # Q) collected from the sale of a product is equal to the total cost of production, we...

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- Famous Figures and Diagrams in Economics
- Copyright
- Contents
- Figures
- Contributors
- Acknowledgements
- Introduction
- Basic Tools of Demand and Supply Curve Analysis
- Chapter 1: Marshallian Cross Diagrams
- Chapter 2: The Stability of Equilibrium
- Chapter 3: Indifference Curves and Isoquants
- Chapter 4: The Elasticity of Substitution
- Chapter 5: Substitution and Income Effects
- Chapter 6: Engel Curves
- Chapter 7: Homothetic Production and Utility Functions
- Chapter 8: Long-run and Short-run Cost Curves
- Chapter 9: The Product Exhaustion Theorem
- Chapter 10: Classification of Technical Change
- Chapter 11: Nash Equilibrium
- Welfare Economics
- Chapter 12: Consumer Surplus
- Chapter 13: The Harberger Triangle
- Chapter 14: Community Indifference Curves and the Scitovsky ‘Paradox’
- Chapter 15: The Taxation of External Costs
- Chapter 16: Monopoly and Price Discrimination
- Chapter 17: Duopoly Reaction Curves
- Chapter 18: Monopolistic Competition
- Chapter 19: Kinked Demand Curves
- Special Markets and Topics
- Chapter 20: Backward-bending Labour Supply Curves
- Chapter 21: Location Theory: The Contributions of von Thünen and Lösch
- Chapter 22: Hotelling’s Model of Spatial Competition
- Chapter 23: Cobweb Diagrams
- Chapter 24: Reswitching and Reversing in Capital Theory
- Chapter 25: The Markowitz Mean-variance Diagram
- Chapter 26: Rent-seeking Diagrams
- Chapter 27: The Logistic Growth Curve
- Chapter 28: Graph Theory and Networks
- Basic Tools of General Equilibrium Analysis
- Chapter 29: Circular Flow Diagrams
- Chapter 30: The Unit Simplex
- Chapter 31: The Edgeworth Box
- Chapter 32: The Role of Numbers in Competition
- Chapter 33: Production Possibility Frontiers
- Chapter 34: The Utility-Possibility Frontier
- Chapter 35: The Factor Price Frontier
- Chapter 36: Pareto Efficiency
- Chapter 37: The Phase Diagram Technique for Analyzing the Stability of Multiple-market Equilibrium
- Chapter 38: The Theory of Second Best and Third Best
- Open Economies
- Chapter 39: The Offer Curve
- Chapter 40: The Stolper-Samuelson Box
- Chapter 41: The Lerner Diagram
- Chapter 42: The Trade Theory Diagram
- Chapter 43: The Four-quadrant Diagram for the Two-sector Heckscher-Ohlin Model
- Chapter 44: The Integrated World Equilibrium Diagram
- Chapter 45: The Optimal Tariff
- Macroeconomic Analysis and Stabilisation
- Chapter 46: Keynesian Income Determination Diagrams
- Chapter 47: The IS-LM Diagram
- Chapter 48: The Fleming-Mundell Diagram
- Chapter 49: The Aggregate Demand Aggregate Supply Diagram
- Chapter 50: The Phillips Curve
- Chapter 51: The UV or Beveridge Curve
- Chapter 52: The Demand Curve for Money
- Chapter 53: Non-neutrality of Money
- Chapter 54: The Laffer Curve
- Growth, Income Distribution and Other Topics
- Chapter 55: Intertemporal Utility Maximization – the Fisher Diagram
- Chapter 56: The Diagrams of the Solow-Swan Growth Model
- Chapter 57: The Lorenz Curve
- Chapter 58: Kuznets Curves
- Index