A Law Mandating That Unions Cut Wages in Order to Create

question 46

Multiple Choice

A law mandating that unions cut wages in order to create more jobs

• A) would cause market failure due to price distortion.
• B) would be Pareto efficient because it would reduce income inequality.
• C) would be Pareto efficient because no one would lose a job and some would get a job.
• D) would not be Pareto efficient because such a law would need to be voluntarily accepted by all who are affected by the law.

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Definitions:

Fixed Overhead

Costs that do not change with the level of production or sales, such as salaries, rent, and insurance, which are necessary for the operation but do not vary with the volume of output.

Direct Labor-Hours

A measure of the labor directly involved in the production of goods, often used in calculating standard costs and variances.

Property, Plant, and Equipment

Long-term tangible assets that are used in the normal operations of a business, such as land, buildings, and equipment.

Insurance

A financial product sold by insurance companies to safeguard against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party.