According to the neoclassical theory of distribution, the real wage earned by any worker equals that worker’s marginal productivity.

According to the neoclassical theory of distribution, the real wage earned by any worker equals that worker’s marginal productivity. Let’s use this insight to examine the incomes of two groups of workers: farmers and barbers.

a. Over the past century, the productivity of farmers has risen substantially because of technological progress. According to the neo-classical theory, what should have happened to their real wage?

b. In what units is the real wage discussed in part (a) measured?

c. Over the same period, the productivity of barbers has remained constant. What should have happened to their real wage?

Solutions

Expert Solution

3.
A.
The technological progress has improved the productivity and it has caused the marginal productivity to increase. As a result, their real wages will increase due to the increase in marginal productivity as proposed by the neoclassical approach.

B.
Here, the real wages are measured in terms of the agricultural produce or output, produced by the farmers.

C.
Productivity remains constant. It means that marginal productivity has not changed. As a result, the real wage of the barbers will not change and remained as before.

Rahul Sunny answered 1 year ago

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