What is the effect of anything that makes the efficiency wage rise relative to the market-clearing wage?
A) It increases both the quantity demanded and the quantity supplied of labour.
B) It decreases both the quantity demanded and the quantity supplied of labour.
C) It increases the quantity demanded and decreases the quantity supplied of labour.
D) It decreases the quantity demanded and increases the quantity supplied of labour.

Question

Quizplus · Accepted Answer

When the efficiency wage rises relative to the market-clearing wage, firms are willing to pay higher wages to their workers in order to increase productivity and reduce turnover. As a result, the quantity demanded of labour decreases because firms are willing to hire fewer workers at the higher wage. On the other hand, the quantity supplied of labour increases because workers are more willing to supply their labour at the higher wage. This creates a surplus of labour, which leads to higher unemployment.

What Is the Effect of Anything That Makes the Efficiency