What are two criticisms of the marginal productivity theory of income distribution?
What will be an ideal response?
The marginal productivity theory of income distribution suggests that people should be paid according to their contribution to output. There are two basic problems with this idea. First, productive resources are not equally distributed. Human abilities and skills differ substantially. Also, there is an unequal distribution of property resources because of inheritances and other factors. As a result, some people with a limited human or property resource base will not receive a sufficient income from that resource base with which to live. Second, the theory is based on the assumption of competitive resource and product markets. Imperfect competition, however, exists in both product and resource markets. These imperfect markets give rise to monopolies that can distort the distribution of income.
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What are the prerequisites of a good forecast?
What will be an ideal response?
An individual has preferences consistent with prospect theory. The person takes their current wealth of $10,000 (plus any certain additions) as their reference point. Gains above this reference point are worth +1 util. Losses below this reference point are worth -2 utils. The person is faced with two choice problems. The first involves a choice between (A) no gamble and (B) a gamble with an equal
chance of winning $1,800 and losing $1,000 . The second choice problem, the person first has $1,000 taken away (resulting in the adjustment of the reference point). The choice is then between (C) being given back $1,000 for sure and (D) an equal chance of winning $2,800 or nothing. What choices would the person make? a. A and C. b. A and D. c. B and C. d. B and D.