The Social Contract Explanation for the Existence of Downwardly Sticky

question 79

Multiple Choice

The social contract explanation for the existence of downwardly sticky wages focuses on

• A) employment contracts that stipulate workers' wages, usually for a period of one to three years.
• B) the contention that workers in one industry may be unwilling to accept a wage cut, unless they know that workers in other industries are receiving similar cuts.
• C) unspoken agreements between workers and firms that firms will not cut wages.
• D) the incentive that firms have to hold wages above the market clearing rate.

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Definitions:

Probability

A measure of the likelihood of a given event happening, often expressed as a number between 0 and 1.

Von Neuman-Morgenstern

Refers to the theory of expected utility, formulated by John von Neumann and Oskar Morgenstern, which addresses choices made under conditions of risk.

Expected Utility Function

A mathematical expression that represents a consumer's preference for uncertain outcomes, weighting each outcome by its probability of occurrence.

Von Neuman-Morgenstern Utility Function

A utility function that accounts for the existence of risk and uncertainty, allowing for the calculation of expected utility.