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    Aggregate production and factor markets

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    A. Over the past century, the productivity of farmers has risen substantially because of technological progress. According to the neoclassical theory, what should have happened to their real wage?

    B. Over the same period, the productivity of barbers has remained constant. Suppose workers can move freely between farmers and being barbers. What does this mobility imply for the wages of farmers and barbers?

    C. What do your previous answers imply for the price of haircuts relative to the price of food?

    D. Who benefits from technological progress in farming - farmers or barbers?

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    Solution Preview

    A. According to the neoclassical theory farmers real wage should have increased.

    B. If the productivity has remained ...

    Solution Summary

    Effects of technological progress are analyzed according to the neoclassical theory