A pooling equilibrium occurs when
A) dissimilar workers are paid alike.
B) firms can distinguish between workers of different qualities.
C) workers of the same quality are paid different wages.
D) all workers are overpaid equally.

Question

Quizplus · Accepted Answer

In a pooling equilibrium, dissimilar workers are paid the same wage, despite differences in their productivity or quality. This occurs because firms are unable to distinguish between the workers and therefore must offer the same wage to attract all workers. This results in workers being overpaid relative to their productivity, but can lead to higher levels of employment as it creates incentives for all workers to participate in the labor market.

A Pooling Equilibrium Occurs When