KRUGMAN'SMICROECONOMICS for AP*

Theories of Income Distribution

Margaret Ray and David Anderson

Micro:

Econ:

37

73

Module

What you will learnin this Module:

• Labor market applications of the marginal productivity theory of income distribution.

• Sources of wage disparities, including the role of discrimination.

The Marginal productivity Theory of Income Distribution•According to MP theory, the division of income among factors of production is determined by MP

•Can we use MP theory to explain why some workers are paid more than others?

Marginal Productivity and Wage Inequality

• Compensating differentials

• Differences in talent

• Human capital

Other Sources of Wage inequality

• Market Power

• Efficiency Wages

• Discrimination

Is the MP Theory Really True?

• Objections to MP theory

• Evidence

• Fairness

• Does MP Theory work?