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Social Science Clinic => Economics => Macroeconomics => Topic started by: wqwpfwpoefnpwenf on Nov 23, 2022
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The Marginal Productivity Theory of Income Distribution
The graph shows the demand for low-skilled labor (DLS), the demand for high-skilled labor (DHS), the supply of low-skilled labor (SLS), and the supply of high-skilled labor (SHS).
Assume that P1=$10.00, P2=$23.00, P3=$39.50, P4=$41.50, P5=$53.15, Q1=205, and Q2=220. What is the value of marginal product of skill? What is the compensation that workers require for the cost of acquiring a skill?
◦ $41.50, $23.00
◦ $18.50, $13.65
◦ $53.15, $41.50
◦ $13.65, $18.50
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$13.65, $18.50
Remember, in the labor market workers are suppliers of labor and firms are demanders of labor.
The value of marginal product of skill is the vertical difference between the demand curve for low-skilled labor (DLS) and the demand curve for high-skilled labor (DHS).
Value of marginal product of skill = P5 - P3 = 53.15 - 39.50 = $13.65
The compensation that workers require for the cost of acquiring a skill is the vertical difference between the supply curve for low-skilled labor (SLS) and the supply curve for high-skilled labor (SHS).
Compensation required for acquiring a skill = P4 - P2 = 41.50 - 23.00 = $18.50