Question 1

Suppose new electronic devices make it easier to monitor the effort levels of workers.If some shirking is still possible in the efficiency wage model,what happens to the level of unemployment?

Accepted Answer

The ability to monitor worker effort levels more easily may reduce shirking to some extent, but it cannot completely eliminate it. As a result, firms may still choose to pay efficiency wages to motivate workers to work hard, which leads to a higher equilibrium wage rate and some level of unemployment. Therefore, the level of unemployment increases, but some unemployment remains.

Question 2

The "no shirking constraint" (NSC)curve never crosses the supply of labor curve,so

Accepted Answer

The NSC curve represents the minimum wage that firms must pay to ensure that workers do not shirk. Since this wage is higher than the market-clearing wage, there will be some unemployment in equilibrium. Therefore, choice C is the correct answer.

Question 3

Firms that have several plants that produce the same or related products are said to be:

Accepted Answer

Firms that produce similar products in different plants are said to be horizontally integrated. Vertical integration would apply if the firm had plants at different stages of the production process (e.g. a steel company that owns iron mines and sells steel products). Conglomerates are firms that produce a diverse range of unrelated products, and cooperatives are organizations owned and operated by its members for their mutual benefit.

Question 4

Firms that contain some divisions that produce parts and components to be used by other divisions in order to generate finished goods are said to be:

Accepted Answer

Firms that produce parts and components to be used by other divisions in order to generate finished goods are engaging in vertical integration, which refers to the consolidation of firms that are involved in different stages of the production process for a particular product. Horizontal integration, on the other hand, refers to the consolidation of firms that are involved in the same stage of the production process or in the same industry. Multinationals and corporations are broad categories that can include firms that are vertically integrated, horizontally integrated, or neither.

Question 5

The "no shirking constraint" (NSC)curve is

Accepted Answer

The "no shirking constraint" (NSC) curve is upward-sloping because it posits that higher unemployment acts as a deterrent to shirking. Workers are less likely to slack off when they know it's harder to find another job, thus requiring less monitoring or incentive from the employer to ensure they're working diligently.

Question 6

The market for used cars in a particular region includes both high quality and low quality cars.High quality cars are sold primarily to quality sensitive customers,while low quality cars are sold to price sensitive buyers.The submarkets for high quality and low quality cars can be described by the supply and demand curves: Q_D^H = 160,000 12.5P^H Q_S^H = - 48,000 + 13.5P^H Q_D^L = 110,000 - 12.5P^L Q_S^L = 20,000 + 10P^L, where Q_D^H,Q_S^H refer to the quantities demanded and supplied of high quality cars,Q_D^L,Q_S^L refer to the quantities demanded and supplied of low quality cars,P^H and P^L refer to the prices of high quality and low quality cars.All quantities are measured in cars per month,prices are measured in dollars. a.Assuming that buyers and sellers are both able to distinguish low quality and high quality cars,determine the price and quantity that will prevail in each submarket. b.Examine the case where sellers are able to accurately determine used car quality but buyers are not.You may assume that buyers assume that all cars are of average quality so that an average demand curve is appropriate.Determine the price and quantity in each submarket. c.Using diagrams,analyze the additional developments in the market until final long run equilibrium is reached.You must describe the eventual outcome,but no calculations are required for this part of the problem.

Accepted Answer

The answer of The market for used cars in a...

Question 7

Use the following statements to answer this question: I.Efficiency wage theory was developed to help explain persistent unemployment and wage discrimination in labor markets.
II.Efficiency wage theory recognizes that labor productivity may be affected by the wage rate.

Accepted Answer

Efficiency wage theory was developed to explain why employers pay wages above the market clearing wage, which can lead to unemployment. This theory recognizes that there may be benefits to paying higher wages, such as reduced turnover and increased employee effort and productivity. As such, II is also true in that labor productivity can be affected by the wage rate, as employees may work harder and be more motivated if they are paid a higher wage.

Question 8

Ford Motor Company was one of the first major companies to adopt a wage structure that is comparable to efficiency wages.What was the outcome of Ford's experiment with efficiency wages?

Accepted Answer

Ford's experiment with efficiency wages resulted in lower labor force turnover, higher labor productivity, and less absenteeism.

Question 9

Suppose new electronic devices make it easier to monitor the effort levels of workers.If some shirking is still possible in the efficiency wage model,what happens to the efficiency wage?

Accepted Answer

With the ability to monitor worker effort levels more easily, shirking becomes more difficult, meaning employers do not need to offer as high of an efficiency wage to incentivize their employees to work hard. However, the efficiency wage will still remain above the competitive wage to ensure that workers are being paid enough to feel valued and motivated to work hard.

Question 10

Suppose new electronic devices make it easier to monitor the effort levels of workers.What happens to the NSC curve in the efficiency wage model?

Accepted Answer

With the introduction of new electronic devices that facilitate the monitoring of workers' effort levels, employers can more easily detect and address shirking. This reduces the need for efficiency wages (higher wages paid to encourage greater worker effort and reduce shirking) because monitoring becomes more effective and less costly. As a result, the no-shirking condition (NSC) curve, which represents the minimum wage at which workers will not shirk given the level of monitoring, shifts downward. This is because it becomes cheaper for firms to ensure workers are not shirking due to the improved monitoring technology.

Question 11

As part of the most recent collective bargaining agreement with state employees,a state government must offer dental insurance at "reasonable,nonprofit rates." The state plans to self insure in place of using a private insurance company.Statistical evidence suggests that the average household currently spends $300 per year for corrective dental work and $80 for routine checkups.Administrative costs are expected to average $20 per family.The collective bargaining agreement dictates that the plan's coverages and rates be fixed for a period of three years.The auditor considers the choice of the plan to be extremely important.Consequently,the auditor has asked you to evaluate the three proposals listed below in terms of their propensity to result in adverse selection and/or moral hazard.Proposal 1 would charge a $400 premium with no deductible.Coverage is extended to preexisting conditions,but to cover the nondeductible clause,routine checkups are not covered.Proposal 2 charges a $200 premium with a $200 deductible.The plan does not cover preexisting conditions,but does cover routine office visits.Proposal 3 charges a $150 premium with a $150 deductible.This plan doesn't cover preexisting conditions or routine checkups.The collective bargaining agreement dictates that participation in the plan must be at the employee's option.

Accepted Answer

The answer of As part of the most recent collective...

Question 12

The "efficiency wage" is the wage at which

Accepted Answer

Efficiency wage theory suggests that paying employees a wage higher than the market wage will motivate them to perform better and be more productive, as they feel a sense of loyalty to the employer and fear of losing their job. This higher wage gives employees no incentive to shirk, as they value their job security and increased earnings.

Question 13

The efficiency wage is

Accepted Answer

The efficiency wage is higher than the market-clearing wage in order to create an incentive for workers to not shirk and to increase productivity. By offering a higher wage than the market rate, employers hope to attract and retain more productive workers who are willing to work hard and not engage in shirking behavior. This approach is based on the idea that paying higher wages will reduce the likelihood of worker turnover and increase the motivation of workers to perform well.

Question 14

In this problem,a labor market exists where employers hire and pay workers according to how much formal education workers possess.Education is a proxy for the level of productivity that employers can expect from workers.Therefore,employers follow a strategy in which they hire workers and pay salaries according to the following conditions: Degrees Above the Values of Post High School High School Level Education During Working Life,B(y) None 0 (y = 0 years) Associate's Degree $30,000 (y = 2 years) Bachelor's Degree $51,000 (y = 4 years) Master's Degree $58,000 (y = 6 years) Assume that there are only two types of worker abilities,those who are less productive (type L)and those who are highly productive (type H).The less productive workers have to study harder than highly productive workers in order to earn any degree.Consequently,the costs (including the psychic costs of study effort)of attaining various levels of education for these two types of employees are different. For less productive workers: C_L(y)= $13,000y For highly productive workers: C_H(y)= $10,000y a.Draw a diagram with years of education on the horizontal axis.Graph the benefits to education B(y)and the costs of education for each of the two types of workers.Discuss what level of education each type of worker should obtain. b.Now use the equations above to verify your answer from part (a)mathematically. c.Explain the value of formal education above the high school level in the market place to employers.

Accepted Answer

The answer of In this problem,a labor market exists where...

Question 15

If all of the divisions in a vertically integrated firm are owned by the same company,why is it possible that asymmetric information problems can lead to inefficient outcomes in vertically integrated firms?

Accepted Answer

Even though all of the divisions in a vertically integrated firm are owned by the same company, managers in some divisions may not have access to relevant information about production capacities or costs in related divisions. This can lead to inefficient outcomes as decisions may be made without considering the full picture. Therefore, asymmetric information problems can still arise in vertically integrated firms, even if they are owned by the same company. Choices A, B, and C are incorrect as they are not relevant to the given question.

Question 16

If individuals are paid the wage at which the supply of labor is equal to the demand for labor,

Accepted Answer

The answer of If individuals are paid the wage at...

Question 17

The principal-agent problem of ownership vs.control of the corporation tends to get worse when

Accepted Answer

The principal-agent problem tends to worsen when stock is very diffusely held, as no single shareholder or small group has enough control to directly influence management's actions, leading to a potential misalignment of interests between owners (shareholders) and managers (agents).

Question 18

Explain the nature and consequences of asymmetric information for each of the following cases.What options are available in each instance to reduce the problem?
a.medical insurance
b.issuance of credit cards
c.professional athletes
d.market for used appliances

Accepted Answer

The answer of Explain the nature and consequences of asymmetric...

Question 19

A certain firm can hire two types of workers: Group A workers who have high productivity and Group B workers with low productivity.Group A workers will add $27,500 to the firm's revenues per year,while Group B workers will increase the firm's revenues by $15,000 per year.The firm's managers expect workers to be employed for eight years.The differences in the workers' productivity levels are reflected in their costs per year of education.Each year of education (which includes the psychic costs of study effort)costs an A worker $12,500,while each year costs a B worker $25,000.
a.Under competitive conditions,how much would A and B workers earn?
b.Assuming that the firm is unable to distinguish A from B workers and that it is equally likely that a worker is of either type,what pay scale will the firm offer?
c.Suppose that the firm decides to use education as a market signaling device to distinguish A workers from B workers.What education requirement could the firm set?

Accepted Answer

The answer of A certain firm can hire two types...

Question 20

The efficiency wage is

Accepted Answer

Efficiency wage theory suggests that firms pay a wage higher than the market-clearing level to increase worker productivity and reduce shirking. This creates a situation where there is a positive amount of unemployment because not everyone who wants to work at that wage can find a job. This unemployment acts as a deterrent against shirking because workers risk a period of unemployment if they are fired for shirking.

Quiz 17: Markets With Asymmetric Information

Suppose new electronic devices make it easier to monitor the effort levels of workers.If some shirking is still possible in the efficiency wage model,what happens to the level of unemployment?

The "no shirking constraint" (NSC) curve never crosses the supply of labor curve,so

Firms that have several plants that produce the same or related products are said to be:

Firms that contain some divisions that produce parts and components to be used by other divisions in order to generate finished goods are said to be:

The "no shirking constraint" (NSC) curve is

Use the following statements to answer this question: I.Efficiency wage theory was developed to help explain persistent unemployment and wage discrimination in labor markets. II.Efficiency wage theory recognizes that labor productivity may be affected by the wage rate.

Ford Motor Company was one of the first major companies to adopt a wage structure that is comparable to efficiency wages.What was the outcome of Ford's experiment with efficiency wages?

Suppose new electronic devices make it easier to monitor the effort levels of workers.If some shirking is still possible in the efficiency wage model,what happens to the efficiency wage?

Suppose new electronic devices make it easier to monitor the effort levels of workers.What happens to the NSC curve in the efficiency wage model?

The "efficiency wage" is the wage at which

The efficiency wage is

If all of the divisions in a vertically integrated firm are owned by the same company,why is it possible that asymmetric information problems can lead to inefficient outcomes in vertically integrated firms?

If individuals are paid the wage at which the supply of labor is equal to the demand for labor,

The principal-agent problem of ownership vs.control of the corporation tends to get worse when

Explain the nature and consequences of asymmetric information for each of the following cases.What options are available in each instance to reduce the problem? a.medical insurance b.issuance of credit cards c.professional athletes d.market for used appliances

The efficiency wage is