In a perfectly competitive economy,workers are well-informed and firms can monitor workers.Suppose the government then passes a "Worker Privacy Act" that makes it very expensive to monitor workers.Which of the following is most likely to occur?
A) Employment and wages will fall.
B) Employment will fall, but the effect on wages is uncertain.
C) Employment and wages will rise.
D) Wages will rise, but the effect on employment is uncertain.

Question

Quizplus · Accepted Answer

With the Worker Privacy Act making it expensive to monitor workers, firms may no longer have the ability to monitor workers efficiently, which poses a risk to their profits in a perfectly competitive market. Hence, firms may choose to reduce employment to offset these costs. On the other hand, the effect on wages is not clear, as the reduced monitoring costs may lead to more competition among firms for the remaining workers, resulting in increased wages, or it may lead to decreased wages due to reduced demand for labor. Therefore, employment will fall, but the effect on wages is not certain.

In a Perfectly Competitive Economy,workers Are Well-Informed and Firms Can