Scenario 19-4
Assume that the labor market for barbers is competitive and that it is differentiated into two groups: barbers who are bald (or going bald) and those who have a full head of hair. Assume that the barbers in this market have identical hair-cutting ability, regardless of whether they are bald or not. Currently, the equilibrium wage in the bald barber market is lower than that in the nonbald market. Further assume that the market for haircuts is competitive.
-Refer to Scenario 19-4. If some consumers in the market for haircuts have a strong preference for having their hair cut by a barber who is not going bald, then
A)the difference in wages will eventually disappear since a haircut is a homogeneous good.
B)barbershops that hire barbers with hair will be able to charge a higher price for a haircut to those consumers who have a strong preference for barbers with hair.
C)barbershops that hire barbers with hair will always be much more profitable.
D)barbershops that hire bald barbers will always be much more profitable.

Question

Quizplus · Accepted Answer

Given that some consumers have a strong preference for barbers with hair, barbershops employing such barbers can charge higher prices to cater to this specific demand, leading to a wage difference based on consumer preferences, despite the homogeneous nature of the service provided.

Scenario 19-4 Assume That the Labor Market for Barbers Is Competitive and Competitive