For the coordination failure model to work,it must be the case that the aggregate labor demand curve must be
A) upward sloping and steeper than the labor supply curve.
B) upward sloping and flatter than the labor supply curve.
C) downward sloping and steeper than the labor supply curve.
D) downward sloping and flatter than the labor supply curve.

Question

Quizplus · Accepted Answer

The aggregate labor demand curve must be upward sloping and steeper than the labor supply curve for the coordination failure model to work. This is because the coordination failure model assumes that firms are unable to coordinate their hiring decisions, and as a result, they end up hiring more workers than they need at the prevailing wage. This leads to a surplus of labor, which drives down wages and makes it difficult for firms to find workers.

For the Coordination Failure Model to Work,it Must Be the Case