Chapter 73, Problem 5MCQ

To determine

The correct option for the marginal productivity theory of income distribution.

Answer to Problem 5MCQ

From the available options, the correct option is with well-functioning labor markets, each factor is paid the equilibrium value of the marginal product of that factor

Explanation of Solution

An individual will receive wage or income according to the total contribution or output that they produce, which means options a, b, and c are incorrect because their total production but not the marginal product affects their wages. The factor distribution of income is not morally justified as these factors are different for different employers.

But each factor is paid the equilibrium value of the marginal product of that factor with well-functioning labor markets because the equilibrium wages are equal to the value of the marginal product of the labor under the marginal productivity theory of income distribution.

Therefore, the correct option is e.

Economics Concept Introduction

Introduction: 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.