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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

Solutions

Chapter
Section
Chapter 15, Problem 6CQQ
Textbook Problem
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According to the theory of efficiency wages,

a. firms may find it profitable to pay above-equilibrium wages.

b. an excess supply of labor puts downward pressure on wages.

c. sectoral shifts are the main source of frictional unemployment.

d. right-to-work laws reduce the bargaining power of unions.

Expert Solution
To determine
Concept based on theory of efficiency wages.

Explanation of Solution

Option (a):

According to the theory of efficiency wages, firms may find it profitable to pay above the equilibrium wages. Offering more wages, that is, more than equilibrium wage will lead to an increase in the productivity, workers’ quality, and workers’ effort. Ultimately, it increases the firm’s total productivity. Therefore, paying more than equilibrium wage is profitable for the firm. Thus, option “a” is correct.

Option (b):

The theory of efficiency wages is related to offering more than equilibrium wage and the profitability of the firm is not about an excess supply of labor and that puts downward pressure on wages...

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