Anything that makes the efficiency wage rise relative to the market-clearing wage will
A)increase both the quantity demanded and the quantity supplied of labor.
B)decrease both the quantity demanded and the quantity supplied of labor.
C)increase the quantity demanded and decrease the quantity supplied of labor.
D)decrease the quantity demanded and increase the quantity supplied of labor.

Question

Quizplus · Accepted Answer

An increase in the efficiency wage relative to the market-clearing wage would mean employers are paying a higher wage than what is necessary to attract the desired amount of workers. This would decrease the quantity demanded of labor as employers would be less willing to hire workers at the higher wage. At the same time, the higher wage would attract more workers, increasing the quantity supplied of labor. Therefore, the correct answer is D, decrease the quantity demanded and increase the quantity supplied of labor.

Anything That Makes the Efficiency Wage Rise Relative to the Market-Clearing