Question 1

Which of the following is an example of an efficiency wage?
A)a high wage paid to compensate for dangerous work such as coal mining
B)an above-equilibrium wage offered by a firm to attract a more talented pool of job applicants
C)a wage below the minimum wage but supplemented by customer tips
D)a high wage paid to a college graduate for a high-skill job such as electrical engineering

Accepted Answer

An efficiency wage is a wage set above the equilibrium wage rate to encourage better performance from employees. Option B states that an above-equilibrium wage is offered by a firm to attract a more talented pool of job applicants, which fits the definition of an efficiency wage. The other options do not fit the definition of an efficiency wage. A high wage paid to compensate for dangerous work such as coal mining is a compensating wage differential, a wage premium paid to compensate for a non-monetary aspect of a job. A wage below the minimum wage but supplemented by customer tips is a tipped wage, a sub-minimum wage paid to certain workers who receive tips from customers. A high wage paid to a college graduate for a high-skill job such as electrical engineering is simply a market wage rate for a high-skilled job.

Question 2

Three employers have justified their actions as follows. Whose logic is not consistent with the logic of efficiency wage theory?
A)Instead of spending money on an electronic timing system that monitors worker hours, Tom spends an equivalent amount of money on higher wages.
B)Dick pays his workers less than the equilibrium wage so that they will not have the time or money to look for work somewhere else.
C)Harry pays his workers in a developing country more than the going wage hoping that they will get a better diet and so be more productive.
D)None of the above is consistent with the logic of efficiency wage theory.

Accepted Answer

Option B is not consistent with the logic of efficiency wage theory, as it is based on the assumption that paying workers less than their market value will motivate them to work harder, which is not supported by efficiency wage theory. The other options (A and C) are consistent with the logic of efficiency wage theory as they involve paying workers a higher wage in the hope of increasing their productivity. Option D is not correct because all three options are consistent with the logic of efficiency wage theory, except for option B.

Question 3

Caroline is the owner of a hair-styling salon and spa. She decides to raise the wages of her workers even though she faces an excess supply of labor. Her decision
A)might increase profits if it attracts a better pool of workers to apply for jobs at her salon.
B)will increase the excess supply of labor.
C)may increase the quality of her work force.
D)All of the above are correct.

Accepted Answer

The answer of Caroline is the owner of a hair-styling...

Question 4

Ariana is the CEO of a corporation that hires nonunion labor. According to the theory of efficiency wages, if she decides to pay her workers more than the competitive equilibrium wage, then
A)the profits of her firm might increase.
B)she will face a shortage of labor.
C)the turnover of her workers may increase.
D)None of the above is correct.

Accepted Answer

According to the theory of efficiency wages, paying workers more than the competitive equilibrium wage can increase their productivity, reduce turnover, and attract higher-quality workers. This can lead to higher profits for the firm in the long run.

Question 5

Buddy is the owner of a firm that bottles beer in St. Louis, Missouri. There are many other such firms in the area. Buddy decides that if he pays his workers a wage higher than the going market wage, his profits will increase. Which of the following is a likely explanation for his decision?
A)The higher the wage, the less often his workers will choose to leave his firm.
B)The higher the wage, the lower will be the costs of obtaining needed supplies.
C)The higher the wage, the more he can charge for his beer
D)The higher the wage, the more he will have to monitor his workers for shirking.

Accepted Answer

By paying a higher wage than the market wage, Buddy will be able to retain his workers better as they will be less likely to leave for another job. This will save him the costs of having to find and train new workers, as well as the costs associated with lower productivity and quality that come with high turnover rates.

Question 6

Minimum-wage laws
A)create frictional unemployment, while firms paying wages above equilibrium to reduce worker turnover creates structural unemployment.
B)create structural unemployment, while firms paying wages above equilibrium to reduce worker turnover creates frictional unemployment.
C)and firms paying wages above equilibrium to reduce worker turnover both create structural unemployment.
D)and firms paying wages above equilibrium to reduce worker turnover both create frictional unemployment.

Accepted Answer

The answer of Minimum-wage laws
A)create frictional unemployment, while firms paying...

Question 7

Rafael is the newly-appointed plant manager for a company that manufactures head phones. Rafael's senior supervisors told him that the output the firm produces, given the number of workers employed, indicates that some workers may be shirking. According to efficiency wage theory, what should he do?
A)pay all workers more than the equilibrium wage rate
B)pay all workers below the equilibrium wage rate to make up for the loss from shirking
C)make sure that workers are getting paid exactly the equilibrium wage rate
D)fire the workers with the most seniority

Accepted Answer

According to efficiency wage theory, paying workers more than the equilibrium wage rate can motivate workers to work harder and reduce shirking as they will not want to lose their higher-paying jobs. This is because workers would not want to lose the opportunity to earn higher wages from another employer who pays the same wage rate. Therefore, Rafael should pay all workers more than the equilibrium wage rate to reduce shirking.

Question 8

Which of the following is not a reason that paying efficiency wages may increase a firm's profit?
A)Efficiency wages increase worker health and therefore increase worker productivity.
B)Efficiency wages decrease worker turnover and therefore decrease hiring and training costs.
C)Efficiency wages decrease worker shirking and therefore increase worker productivity.
D)Efficiency wages are below the equilibrium wage rate but still attract a sufficient number of workers.

Accepted Answer

Efficiency wages are typically above the equilibrium wage rate, not below it. If wages are below the equilibrium wage rate, it would not be considered an efficiency wage.

Question 9

Sectoral changes in demand
A)create frictional unemployment, while firms paying wages above equilibrium to attract a better pool of candidates creates structural unemployment.
B)create structural unemployment, while firms paying wages above equilibrium to attract a better pool of candidates creates frictional unemployment.
C)and firms paying wages above equilibrium to attract a better pool of candidates both create structural unemployment.
D)and firms paying wages above equilibrium to attract a better pool of candidates both create frictional unemployment.

Accepted Answer

The answer of Sectoral changes in demand
A)create frictional unemployment, while...

Question 10

According to the theory of efficiency wages, if a firm stops paying efficiency wages it is likely to see a(n)
A)increase in the number of job applicants and an increase in how long workers stay on the job.
B)increase in the number of job applicants and a decrease in how long workers stay on the job.
C)decrease in the number of job applicants and an increase in how long workers stay on the job.
D)decrease in the number of job applicants and a decrease in how long workers stay on the job.

Accepted Answer

The theory of efficiency wages suggests that paying higher wages than the market equilibrium can lead to increased worker productivity and reduced turnover. If a firm stops paying these higher wages, workers may become less motivated and more likely to leave for higher-paying jobs elsewhere. As a result, the firm is likely to see a decrease in the number of job applicants and a decrease in how long workers stay on the job.

Question 11

If there were no factors keeping wages from reaching equilibrium then there would be no
A)cyclical unemployment.
B)frictional unemployment.
C)structural unemployment.
D)natural rate of unemployment.

Accepted Answer

The answer of If there were no factors keeping wages...

Question 12

A firm may pay efficiency wages in an attempt to
A)reduce incentives to shirk.
B)reduce turnover.
C)attract a well-qualified pool of applicants.
D)All of the above are correct.

Accepted Answer

Efficiency wages are above-market wages paid by firms in order to motivate workers to perform better by either reducing incentives to shirk or reducing turnover. These higher wages also attract a better-qualified pool of applicants who are willing to work harder in exchange for higher pay. Therefore, all of the given options are correct.

Question 13

Michael decides to hire some additional workers for his roofing company. The equilibrium wage is $17 per hour. Efficiency wage theory suggests that it is reasonable for Michael to offer
A)$17 per hour.
B)less than $17 per hour because some people would be willing to work for less.
C)less than $17 an hour to prevent shirking.
D)more than $17 per hour in order to attract a better pool of applicants.

Accepted Answer

The answer of Michael decides to hire some additional workers...

Question 14

In which of the following situations should a firm pay efficiency wages?
A)A hiring manager can easily judge the quality of applicants, and after workers have worked for the firm a while, they tend not to look for other jobs.
B)A hiring manager can easily judge the quality of applicants, and after workers have worked for the firm a while, they tend to look for other jobs.
C)A hiring manager cannot easily judge the quality of applicants, and after workers have worked for the firm a while, they tend to look for other jobs.
D)A hiring manager cannot easily judge the quality of applicants, and after workers have worked for the firm a while, they tend not to look for other jobs.

Accepted Answer

Efficiency wages may be paid in situations where a hiring manager cannot easily judge the quality of applicants, and after workers have worked for the firm a while, they tend to look for other jobs. By offering higher wages than the market equilibrium, the firm can attract higher quality workers who will be more productive and motivated to remain with the company. This helps reduce turnover and training costs, which may be higher in industries with fewer skilled or experienced workers. In situations where workers tend not to look for other jobs, there may not be a strong incentive for a firm to pay efficiency wages as they may not see a return on their investment in higher wages.

Question 15

Job search
A)and firms paying wages above equilibrium to improve worker health both create frictional unemployment.
B)creates frictional unemployment, while firms paying wages above equilibrium to improve worker health creates structural unemployment.
C)creates structural unemployment, while firms paying wages above equilibrium to improve worker health creates frictional unemployment.
D)and firms paying wages above equilibrium to improve worker health both create structural unemployment.

Accepted Answer

The answer of Job search
A)and firms paying wages above equilibrium...

Question 16

A firm may pay efficiency wages in an attempt to
A)entice workers to work the night shift rather than the day shift.
B)improve productivity by reducing turnover.
C)reduce costs by attracting the least-skilled workers to apply for job vacancies.
D)All of the above are correct.

Accepted Answer

Efficiency wages are wages that are deliberately set above the market equilibrium wage rate in order to improve productivity, reduce turnover and improve morale. By paying higher wages, firms can attract a higher caliber of workers, who in turn are more productive and less likely to leave their jobs. This can result in lower recruitment and training costs for the firm and also improve the overall quality of the output produced. Option A is incorrect as paying higher wages does not necessarily mean workers will move from day to night shifts. Option C is incorrect as efficiency wages are not used to attract the least-skilled workers, but rather the highest quality workers available.

Question 17

Which of the following causes of unemployment is not associated with a wage rate above the market equilibrium level?
A)efficiency wages
B)job search
C)minimum-wage laws
D)unions

Accepted Answer

Job search is not associated with a wage rate above the market equilibrium level. It refers to the time that workers spend searching for jobs that match their skills and preferences, and is a natural part of the job market. The other three choices (efficiency wages, minimum-wage laws, and unions) can all lead to a wage rate above the market equilibrium level, which can result in unemployment.

Question 18

The efficiency-wage theory of worker turnover suggests that firms with higher turnover will have
A)higher production costs and higher profits.
B)higher production costs and lower profits.
C)lower production costs and higher profits.
D)lower production costs and lower profits.

Accepted Answer

The efficiency-wage theory posits that firms who pay their workers more than the market wage will have lower turnover, as workers will be motivated to work harder and remain employed at that firm. However, firms with high turnover who are paying their workers more than the market wage will have higher production costs, as they are investing more in their workers. This will lead to lower profits, as higher production costs will eat into the firm's revenues.

Question 19

Emeril is the owner of a restaurant. He decides to raise the wages of his workers even though he faces an excess supply of labor. His decision
A)might increase profits if it attracts a better pool of workers to apply for jobs at his restaurant.
B)will reduce the excess supply of labor.
C)is an example of the benefits of a minimum-wage law.
D)All of the above are correct.

Accepted Answer

By raising wages, Emeril may be able to attract a better pool of workers who are more skilled and efficient, which could ultimately increase profits. Additionally, if workers are paid more, they may be more motivated to perform well, which can contribute to higher levels of productivity and reduce turnover. However, raising wages alone may not completely eliminate the excess supply of labor. The answer C is incorrect because the scenario is not an example of a government-mandated minimum-wage law.

Question 20

Which of the following is not a reason economies experience structural unemployment?
A)job search
B)unions
C)minimum-wage laws
D)efficiency wages

Accepted Answer

The answer of Which of the following is not a...

Quiz 28: Unemployment and Its Natural Rate

Which of the following is an example of an efficiency wage?

Three employers have justified their actions as follows. Whose logic is not consistent with the logic of efficiency wage theory?

Caroline is the owner of a hair-styling salon and spa. She decides to raise the wages of her workers even though she faces an excess supply of labor. Her decision

Ariana is the CEO of a corporation that hires nonunion labor. According to the theory of efficiency wages, if she decides to pay her workers more than the competitive equilibrium wage, then

Buddy is the owner of a firm that bottles beer in St. Louis, Missouri. There are many other such firms in the area. Buddy decides that if he pays his workers a wage higher than the going market wage, his profits will increase. Which of the following is a likely explanation for his decision?

Minimum-wage laws

Rafael is the newly-appointed plant manager for a company that manufactures head phones. Rafael's senior supervisors told him that the output the firm produces, given the number of workers employed, indicates that some workers may be shirking. According to efficiency wage theory, what should he do?

Which of the following is not a reason that paying efficiency wages may increase a firm's profit?

Sectoral changes in demand

According to the theory of efficiency wages, if a firm stops paying efficiency wages it is likely to see a(n)

If there were no factors keeping wages from reaching equilibrium then there would be no

A firm may pay efficiency wages in an attempt to

Michael decides to hire some additional workers for his roofing company. The equilibrium wage is $17 per hour. Efficiency wage theory suggests that it is reasonable for Michael to offer

In which of the following situations should a firm pay efficiency wages?

Job search

A firm may pay efficiency wages in an attempt to

Which of the following causes of unemployment is not associated with a wage rate above the market equilibrium level?

The efficiency-wage theory of worker turnover suggests that firms with higher turnover will have

Emeril is the owner of a restaurant. He decides to raise the wages of his workers even though he faces an excess supply of labor. His decision

Which of the following is not a reason economies experience structural unemployment?