Question

Suppose that efficiency wages become more common in the economy. Imposing efficiency wages a. increases the quantity demanded and decreases the quantity supplied of labor. b. decreases the quantity demanded and increases the quantity supplied of labor. c. increases the quantity demanded and decreases the quantity supplied of labor. d. decreases the quantity demanded and increases the quantity supplied of labor.

Answer 1

b. decreases the quantity demanded and increases the quantity supplied of labor.

Step-by-step explanation:

The efficiency wage theory suggests that some firms tend to make improvements in their processes when they pay their workers above the market wage. This is because these workers are more satisfied, less stressed and tend to devote less. In addition, the turnover trend between jobs also decreases. Thus, the firm increases its productivity, decreasing the required labor demand. Regarding the supply of labor, naturally there will be greater supply as wages are higher.