In Job X,the employer gets a gross benefit of $600 a week from employing a worker (this is the highest wage the employer will pay).The worker is willing to work for the employer if paid $400 a week or more.Which of the following is Pareto efficient?
A) a law mandating a minimum wage of $650 a week
B) a law mandating a maximum wage of $300 a week
C) a law allowing the employer to pay whatever wage they want
D) a law mandating a chauffeured car, costing $250 a week and valued by the worker at $10, be provided by the employer

Question

Quizplus · Accepted Answer

A Pareto efficient outcome is one where no individual can be made better off without making someone else worse off. In option C, allowing the employer to pay whatever wage they want enables a range of wages between $400 and $600, where both the employer and worker can negotiate a wage that benefits both without making the other worse off. Options A, B, and D involve mandates that restrict the negotiation range or impose costs, potentially making one party worse off.

In Job X,the Employer Gets a Gross Benefit of $600