Chapter 13R, Problem 24MCQ

To determine

The correct option that defines wage efficiency.

Answer to Problem 24MCQ

Option b is correct.

Explanation of Solution

Explanation for correct option:

b.

Wage efficiency refers to the wages that are paid above equilibrium wages in order to incentivize the hard work of the worker. It is also done to ensure that turnover rate declines. Therefore, option b is correct.

Explanation for incorrect options:

a.

If wages are paid below the equilibrium level then worker’s turnover rate will increase as they leave the job for better opportunity. Therefore, option a is incorrect.

c.

If wages are paid equivalent to market equilibrium then wage efficiency does not exists. Therefore, option c is incorrect.

d.

Wage efficiency results in higher level of productivity as they are been paid high due to special hard work they do. Therefore, option d is incorrect.

e.

Wage efficiency reduces the worker’s supervision they are been paid higher then the market. Therefore, option e is incorrect.

Economics Concept Introduction

Factor of production: Factor of production refers to the components or the resources that are required for producing intangible or tangible products.

Wage efficiency: As per marginal productivity theory, high wages are paid to the workers for not leaving the job due to getting better alternative job. For instance, childcare workers are provided higher pay just to ensure they do not leave the job.