I have an lazy instructor using test bank questions unrelated to my text and need some help. The second question is "anything that makes the efficiency wage rise relative to the market-clearing wage will...A) increase both the quantity demanded and the quantity supplied of labor. B)decrease both the quantity demanded and quantity supplied of labor. C)increase the quantity demanded and decrease the quantity supplied of labor. D)decrease the quantity demanded and increase the quantity supplied of labor.
Now the might sound straight-forward but my textbook does not explain efficiency wage that way. It states efficiency wages = above-equilibrium wages paid by firms to increase worker productivity. Nothing about supply & demand. HELP before I jump from the roof!
Unemployment from a Wage above the Equilibrium Level = In this labor market, the wage at which supply and demand balance is at equilibrium. At this equilibrium wage, the quantity of labor supplied and the quantity of labor demanded both equal the equilibrium quantity. By contrast, if the wage is forced to remain above
the equilibrium level, perhaps because of a minimum-wage law, the quantity of labor supplied rises and the quantity of labor demanded falls. The resulting surplus of labor represents unemployment.
Suggest answer D.
It seems like you are facing some confusion regarding the concept of efficiency wage and its relationship with the quantity demanded and quantity supplied of labor. I can help clarify this for you.
Efficiency wages refer to above-equilibrium wages paid by firms to increase worker productivity. This means that firms pay higher wages than the market-clearing wage, which is the wage at which supply and demand for labor balance and there is no excess supply or demand for workers.
When the efficiency wage rises relative to the market-clearing wage, it means that firms are paying even higher wages to their workers to increase productivity. In this situation, the answer to the question "anything that makes the efficiency wage rise relative to the market-clearing wage will..." would be D) decrease the quantity demanded and increase the quantity supplied of labor.
To explain why this is the correct answer, let's consider the impact of rising efficiency wages on the labor market. When firms pay higher wages, it becomes more attractive for individuals to seek employment, thereby increasing the quantity supplied of labor. As a result, the supply of labor increases.
On the other hand, firms are paying higher wages for increased productivity from their workers, which may lead to a decrease in the quantity demanded of labor. Some firms may reduce their workforce or hire fewer workers due to the higher costs associated with paying higher wages.
Therefore, when the efficiency wage rises relative to the market-clearing wage, there is a decrease in the quantity demanded of labor and an increase in the quantity supplied of labor. This is represented by answer choice D) decrease the quantity demanded and increase the quantity supplied of labor.
I hope this explanation helps you understand the relationship between efficiency wages and the quantity of labor demanded and supplied. It's important to note that test bank questions may sometimes present concepts in a different way than your textbook, so it's essential to consider various perspectives when answering such questions. If you have any further questions, I'll be glad to assist you.