Question

QUESTION 25

1. The payment of efficiency wages may result in higher rates of unemployment because

   		firms will lay off workers once productivity increases.
   		quit rates tend to be higher at firms paying efficiency wages since workers must work harder than at other firms.
   		employees at low-wage firms may decide that expected earnings can be increased by searching for employment among employers paying efficiency wages.
   		firms that pay efficiency wages work their existing workers longer hours.

2 points   

QUESTION 26

1. A self-enforcing employment contract may be difficult to achieve because

   		information in the labor market may be asymmetric.
   		employment contracts are implicit.
   		the terms of the employment contract are typically incomplete.
   		all of thees are correct.

2 points   

QUESTION 27

1. If the number of unemployed workers equals 15 and the number of employed workers equals 135, the unemployment rate equals

   		11.1 percent
   		12.5 percent
   		15 percent
   		10 percent

2 points   

QUESTION 28

1. The theory of compensating differentials predicts that

   		workers with poor conditions will earn more than those with good conditions.
   		holding worker characteristics constant, workers experiencing poor conditions will earn more than those experiencing good conditions.
   		holding wages constant, highly skilled workers will work under worse conditions than less skilled workers.
   		All of these are true

Answer 1

25). The correct option is (c).

employees at low-wage firms may decide that expected earnings can be increased by searching for employment among employers paying efficiency wages.

26). The correct option is (d).

all of thees are correct.

A self-enforcing employment contract is an agreement that is enforced only by the parties to it; no external party can enforce or interfere with the contract.

27). The correct option is (d).

10

Unemployment rate = Number of unemployed persons / Labour force X 100

=15 / 150 × 100

=10

We know in labour force there are both employed and unemployed.

Q28). The correct option is (c)

holding worker characteristics constant, workers experiencing poor conditions will earn more than those experiencing good conditions.

The theory of compensating differentials predicts that, other things equal, jobs with low non-wage benefits would have to pay higher wages.

Hope you got the answer.

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