Figure 6.4

-Refer to Figure 6.4.An efficiency wage in this economy would be represented by a real wage of ________ and an employment level of ________.

Question

Figure 6.4 -Refer to Figure 6.4.An efficiency wage in this economy would be represented by a real wage of ________ and an employment level of ________.

Quizplus · Accepted Answer

Efficiency wage theory suggests that there is an optimal level of wages that can lead to increased productivity and reduced turnover, thus lowering labor costs for the firm. In Figure 6.4, an efficiency wage would result in an increase in the real wage from w₁ to w₂. At this higher wage rate, some workers who were previously not willing to work will now enter the labor market, leading to an increase in the level of employment from L₁ to L₂. However, if wages were increased further to w₃, some workers may become complacent and reduce their effort, leading to a decrease in productivity and employment (L₃ < L₂). Therefore, the optimal efficiency wage is w₂, which is represented by choice C.

Figure 6.4 -Refer to Figure 6.4.An Efficiency Wage in This Economy Would