Chapter 73, Problem 2FRQ

To determine

The three different economic concepts that explain wage differences when the marginal productivity theory of income distribution does not explain.

Explanation of Solution

The three economic concepts that explain wage differences when the marginal productivity theory of income distribution do not are as follows:

1. Discrimination based on gender, religion, or ethnicity: Some factors such as age, sex, religion, or caste of the worker can lead to wage discrimination in the organization as stereotypes about workers can be the reason for low pay to female workers and high wage to males in the organization.
2. Efficiency wages: This is also an economic concept under which employers pay higher wages to workers to reduce the shortage of workers and retain the skilled workers in the organization so that the productivity of the organization would increase. This concept is not considered in the marginal productivity theory of income distribution.
3. Market power: A market power in the economy leads to inequality such as unequal distribution of income. Because when there is no particular competition, then organizations reduce workers’ wages and if there is a shortage of labor in the market as compared to the supply, then the wage of workers can increase.

Economics Concept Introduction

Introduction: When there is a difference in wages of workers due to skills, experience, and the nature of the work, then it is a wage differential or wage difference among workers.

According to the marginal productivity theory of income distribution, every individual will receive wage or income according to the total contribution or output that they produce.