Philip is an average contractor in town, and he earns $40,000 a year. Billy is the best contractor in town, and he earns $480,000 a year. Philip's contracting services
A)are valued more by the market relative to Billy's and that explains why his income is higher than Billy's.
B)are valued less by the market relative to Billy's and that explains why his income is higher than Billy's.
C)are valued less by the market relative to Billy's and that explains why his income is lower than Billy's.
D)are more expensive because he receives a compensating differential.

Question

Quizplus · Accepted Answer

The fact that Billy earns significantly more than Philip suggests that the market values Billy's contracting services higher than Philip's. Therefore, choice C, which states that Philip's contracting services are valued less by the market relative to Billy's and that explains why his income is lower than Billy's, is the best choice.

Philip Is an Average Contractor in Town, and He Earns