Question

Pedro earned a degree from an elite college last year, and now he earns more than his friend Juan, who obtained a degree from a public college. Describe two alternative economic theories that explain this phenomenon.

Answer 1

The economic theories applicable in such situation are:

Unequal distribution of resources: the unequal distribution of wealth, where the available resources are not distributed equally amongst the citizens of a country. Here, unequal distribution of resources, i.e., education between Pedro and Juan has led to such conditions. Resource availability for the richer or higher class of population is much more than that of the poor or middle class population, which ultimately leads to the unequal distribution of income between Pedro and Juan, as one gets more opportunities than others.

Private organizations over government organizations: people choose public organizations over private organizations, as they are more advanced, disciplined and of good quality than the public sector units. But this differentiation counts for the differentiation between the opportunities available for the one which has studied from a private institution and one from the public institution. This differentiation creates an inequality in the income of Pedro and Juan also.