In the Labor Market, Contracts Are Often Designed to Include

question 19

Multiple Choice

In the labor market, contracts are often designed to include a variable salary component that is tied to some measure of performance. Why?

• A) Such contracts provide workers with the incentive to work hard.
• B) Most people are risk-loving and thus variability in their compensation leads to higher total utility.
• C) Labor unions demand a variable salary component.
• D) The variable component reduces wages paid by firms.

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Definitions:

Budget Constraint

A financial limitation that defines the combination of goods and services an individual can afford to purchase given their income and the prices of those goods and services.

Income

The financial gain acquired by an individual or a company, which is typically calculated on an annual basis and obtained through work, investments, or business operations.

Nuts

Plant-derived kernels rich in fats, protein, and other nutrients, typically consumed raw or roasted.

Berries

Small, juicy fruits that are typically round, brightly colored, and sweet or sour in taste.