Suppose the demand for labor shifts rightward due to economic growth, but the supply of labor remains unchanged. How does this affect the market outcome under an efficiency wage equilibrium?
A) Efficiency wage and employment are higher.
B) Efficiency wage is lower, employment is higher.
C) Efficiency wage is higher, employment is lower.
D) Efficiency wage and employment are lower.

Question

Quizplus · Accepted Answer

When the demand for labor increases due to economic growth, but the supply of labor remains unchanged, employers will need to attract more workers. Under an efficiency wage equilibrium, firms pay above the market-clearing wage to increase productivity and reduce turnover. With a rightward shift in labor demand, firms will raise wages further to attract the needed additional workers, leading to both higher efficiency wages and higher employment levels.

Suppose the Demand for Labor Shifts Rightward Due to Economic