Chapter 13R, Problem 25MCQ

To determine

The correct option that defines reason for paying efficiency wages.

Answer to Problem 25MCQ

Option c is correct.

Explanation of Solution

Explanation for correct option:

c.

Wage efficiency refers to the wages that are paid above equilibrium wages in order to incentivize the hard work of the worker. Firms usually pay efficiency wages in order to ensure worker’s productivity and their loyalty towards firm. Therefore, option c is correct.

Explanation for incorrect options:

a.

Efficiency wages are the wages that are higher then the market wages which means firm cannot save money. Therefore, option a is incorrect.

b.

Efficiency wages are paid to the customers that do not affect the impact on customer’s loyalty. Therefore, option b is incorrect.

d.

Wage efficiency results in higher level of productivity which means they are not been replaced by the machines. Therefore, option d is incorrect.

e.

Wage efficiency increases the wage inequality as payment is incentivize to ensure worker’s loyalty and their hard work. 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.