AP Economics Mr. Bernstein Module 73: Theories of Income Distribution December 22, 2014.
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Transcript of AP Economics Mr. Bernstein Module 73: Theories of Income Distribution December 22, 2014.
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AP EconomicsMr. Bernstein
Marginal Productivity Theory of Income Distribution• Marginal Productivity at equilibrium determines
division of income among factors of production• Can also explain why some workers are paid more
than others
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AP EconomicsMr. Bernstein
Marginal Productivity and Wage Inequality• Compensating Differentials• ie Graveyard shift
• Differences in Talent• ie All-Star Pro Athlete
• Human Capital• ie Master’s Degree
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AP EconomicsMr. Bernstein
Marginal Productivity and Wage InequalityConditions where employees with similar skills may receive
differing wages:• Market Power
• Unions
• Efficiency Wages• Incentives for performance increases productivity• Reduces cost of employee turnover
• Discrimination• Supply and Demand should eliminate discrimination• Could be explained by reduced access to training, etc.• Perceptions of skills distorted by bias