What Does the Theory of Efficiency Wages Explain

question 46

Multiple Choice

What does the theory of efficiency wages explain?

• A) why setting wages at the equilibrium level may increase unemployment
• B) why it may be in the best interest of firms to offer wages that are above the equilibrium level
• C) why the most efficient way to pay workers is to pay them according to their skills
• D) why it is efficient for firms to set wages at the equilibrium level

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Definitions:

Cash Balance

The total amount of cash or cash equivalents a company or individual holds at any given time.

Merchandising Firm

A business that purchases finished goods for the purpose of resale to consumers without altering the condition of the goods.

Merchandise Inventory

Goods or products that a company holds with the intention of selling them to customers as part of its business operations.

Selling Expenses

Costs incurred directly and indirectly from selling a product or service, including sales commissions, advertising, promotional materials, and the salaries of sales staff.