In the efficiency wage model with the efficiency wage above the market-clearing wage,the level of employment depends on
A)the intersection of labor supply and labor demand.
B)the marginal productivity of capital and the marginal productivity of labor.
C)labor demand alone.
D)labor supply alone.

Question

Quizplus · Accepted Answer

In the efficiency wage model where the efficiency wage is set above the market-clearing wage, the level of employment is determined by the demand for labor. Employers pay a higher wage to increase productivity and reduce turnover, but this leads to a situation where not everyone who wants to work at that wage can find a job, making the demand for labor the limiting factor in employment levels.

In the Efficiency Wage Model with the Efficiency Wage Above