The Theory of Efficiency Wages Explains Why

question 109

Multiple Choice

The theory of efficiency wages explains why

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

---

Definitions:

Elon Musk

An entrepreneur and business magnate known for his involvement in SpaceX, Tesla, Inc., and several other high-tech ventures.

Normal Profit

The minimum amount of revenue that a company needs to cover both explicit and implicit costs.

Entrepreneurs

Individuals who, rather than working as employees, run a business and assume all the risks and rewards of a given business venture, idea, or good or service offered for sale.

Allocative Efficiency

A state of resource distribution where resources are allocated in a way that maximizes the total benefit received by all members of society.