In a market where firms operate according to efficiency wage theory,

Question

Quizplus · Accepted Answer

Efficiency wage theory suggests that firms pay higher wages than the market equilibrium to increase productivity, which can lead to a higher natural rate of unemployment (as firms hire fewer workers at these higher wages), lower job-finding rates (as there are fewer jobs available relative to the number of job seekers), and potentially a higher number of job seekers (as higher wages attract more people to the labor market). Thus, all of the statements A, B, and C are consequences of the efficiency wage theory, making D the correct answer.

In a Market Where Firms Operate According to Efficiency Wage