A competitive market may be consistent with a discriminatory wage differential if
A)firms' customers have discriminatory preferences.
B)the wage differential is explained by a compensating differential.
C)the wage differential is explained by differences in human capital.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

If firms' customers have discriminatory preferences, they may be willing to pay a higher price or prefer to buy from employees of a certain race or gender, leading firms to hire certain groups at higher wages. This would be consistent with a competitive market as firms are responding to consumer demand, but would result in a discriminatory wage differential. Options B and C refer to non-discriminatory wage differentials which are not relevant to the question.

A Competitive Market May Be Consistent with a Discriminatory Wage