Consider the Two-Sector Model of General Equilibrium

question 20

Multiple Choice

Consider the two-sector model of general equilibrium. In the case of Pareto-efficient bargaining between the firm and the union, which means that the wage-employment outcome lies to the right of the labour demand curve, the effect of the union on employment levels is:

• A) larger than what would be the case if the threat effect was present.
• B) greater than what would otherwise be the case.
• C) less than what would otherwise be the case.
• D) non-existent, as that factor is irrelevant.
• E) the same as would be the case if the wait-unemployment effect was present.

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