If the productivity of farmers has risen substantially over time because of technological progress, and workers can move freely between being farmers and barbers, the neoclassical theory of distribution predicts that the real wage(s) of:
A) both barbers and farmers should have remained constant over time.
B) both barbers and farmers should have risen over time.
C) farmers should have risen while the real wage of barbers should have remained constant.
D) barbers should have risen while the real wage of farmers should have remained constant.

Question

Quizplus · Accepted Answer

According to neoclassical theory, as productivity increases, the marginal product of labor (MPL) increases, leading to an increase in real wages. As the productivity of farmers has risen substantially due to technological progress, the MPL has increased, leading to an increase in real wages of both farmers and barbers. Additionally, workers being able to move freely between these two professions would ensure that the wage rate in each profession would be equal to the MPL, leading to an increase in real wages over time for both professions. Thus, both barbers and farmers should have seen an increase in their real wages over time. Therefore, option B is the best choice for this scenario.

If the Productivity of Farmers Has Risen Substantially Over Time