● Value of Marginal Product (VMP)
○ VMP = P*MP
○ P= price of final product (good
○ MP = Marginal product of worker
Average Earnings (Year 2010 Dollar), Full-time workers in Canada
Day Care Workers $15,515
Book keepers $38,681
Specialist Physicians $220,885
● How does economics explain?
○ Ans: Value of Marginal Product of the last worker hired
● How can economics theory (VMP) be true in light of:
○ 1) Extraordinary incomes of superstars such as Celine Dion and Tiger Woods?
○ 2) Low incomes of day care workers, who provide important service?
○ 3) Males tend to earn higher incomes than females?
○ 1) Celine Dion and Tiger Woods: $30 million per year
○ 2) Slightly less talented professionals: $50,000 per year
○ 3) Earning differential has increased sharply over time
● Can VMP Explain?
○ Now: Income derived from CDs (Everyone can consume the “best”)
○ 19th Century: Income derived from concerts
○ Now: Income derived from TV (everyone can consume the “best”)
○ 19th Century: Income derived from ticket sales at tournaments
● The same concept: Everyone can consume (sparked by viewer interest), extremely
high value of marginal product
○ “Best” plumber in Toronto: $60 per hour
○ Average plumber: $45 per hour
○ Why is difference so small?
■ Answer: only ONE customer at a time can purchase service of “best”
Day Care Workers ($15,500 per year)
● Insight: ○ Elastic supply of individuals (low opportunity cost) willing to work as day care
○ For simplicity, assume SS is perfectly elastic and that supply if of large number
● Government provides $5 per day subsidy to parents who use day care
○ What happens to:
■ 1) Wages of day care workers?
■ 2) Level of employment?
○ The demand for daycare will shift upwards by $5 dollars
○ Price and quantity will increase
■ level of employment will increase ○ Wage of day care workers, Nothing: since supply is essentially elastic
Assume all daycare workers could earn $40,000 as computer programmers
● Questions: What will happen to:
○ Wage of daycare workers?
○ Number of daycare workers?
● Wage will rise and number of daycare workers will fall.
● Reasons why daycare workers wage are low
● Supply curve is elastic
● and Opportunity cost is v