Econ Chapter 15.5

According to the theory of efficiency wages, it cannot be profitable for firms to keep wages above equilibrium. True False

False

Efficiency wages create frictional unemployment. True False

False

In 1914, Henry Ford began paying his workers $5 per day, about twice the going wage. As a result, turnover and absenteeism fell. However, profits fell. True False

False

Paying efficiency wages means that wages are a.above equilibrium, and unemployment is higher than otherwise. b.below equilibrium, and unemployment is higher than otherwise. c.below equilibrium, and unemployment is lower than otherwise. d.above equilibrium, and unemployment is lower than otherwise.

a.above equilibrium, and unemployment is higher than otherwise.

According to the theory of efficiency wages, if a firm stops paying efficiency wages it is likely to see a(n) a.decrease in the quality of job applicants and need to replace workers more frequently. b.increase in the quality of job applicants but need to replace workers more frequently. c.increase in the quality of job applicants and need to replace workers less frequently. d.decrease in the quality of job applicants but need to replace workers less frequently.

a.decrease in the quality of job applicants and need to replace workers more frequently.

Hasina is a plant manager at a factory in a relatively poor country. Even though market wages are low, she decides to raise the wages of her workers so they can have a more nutritious diet. According to efficiency wage theory the increase in wages will a.raise productivity but increase unemployment. b.reduce productivity and increase unemployment c.reduce productivity but decrease unemployment. d.raise productivity and decrease unemployment.

a.raise productivity but increase unemployment.

Efficiency wages a.raise structural unemployment. b.raise frictional unemployment. c.reduce frictional unemployment. d.reduce structural unemployment.

a.raise structural unemployment.

Efficiency wages a.decrease productivity but increase profits. b.increase productivity and profits. c.increase productivity but decrease profits. d.decrease productivity and profits.

b.increase productivity and profits.

Efficiency wages a.decrease profits and increase unemployment b.increase profits and unemployment c.increase profits and decrease unemployment d.decrease profits and unemployment

b.increase profits and unemployment

Caroline is the president of a nationwide company that provides janitorial services. She decides to raise the wages of her workers so that they are above equilibrium. According to the theory of efficiency wages her workers are likely to a.shirk more but stay on the job longer. b.shirk less and stay on the job longer. c.shirk less but leave their jobs more frequently. d.shirk more and leave their jobs more frequently.

b.shirk less and stay on the job longer.

Claire manages a health clinic. Once receptionists, patient-care representatives, and record keepers are trained they often leave to find other work. Claire considers paying a higher wage hoping workers will stay on the job longer. According to the theory of efficiency wages, if Claire raises wages paid to these types of employees they will a.not tend to stay on the job longer and profits will fall. b.tend to stay on the job longer and profits will rise. c.tend to stay on the job longer but profits will fall. d.not tend to stay on the job longer and profits will be unchanged.

b.tend to stay on the job longer and profits will rise.

In which of the following situations is a firm most likely to see the largest benefits by paying above equilibrium wages? a.worker turnover is low, the cost of hiring and training new workers is high. b.worker turnover is high, the cost of hiring and training new workers is high. c.worker turnover is high, the cost of hiring and training new workers are low. d.worker turnover is low, the cost of hiring and training new workers is low.

b.worker turnover is high, the cost of hiring and training new workers is high.

Which of the following is an example of an efficiency wage? a.A wage based on the amount of goods a worker produces per hour. b.A high wage paid to compensate for dangerous work such as truck driving. c.An above-equilibrium wage offered by a firm to attract a more talented pool of job applicants. d.A high wage paid to a college graduate for a high-skill job such as electrical engineering.

c.An above-equilibrium wage offered by a firm to attract a more talented pool of job applicants.

Clyde is the president of a firm that bottles beer in St. Louis, Missouri. There are many other such firms in the area. Clyde decides that if he pays his workers a wage higher than the going market wage, his profits will increase. Which of the following is a likely explanation for his decision? a.The higher the wage, the more he can charge for his beer. b.The higher the wage, the more his competitor's profits will fall. c.The higher the wage, the less turnover in his work force. d.The higher the wage, the more he will have to monitor his workers for shirking.

c.The higher the wage, the less turnover in his work force.

Tony manages a company where electrical engineers work to improve existing products and develop new ones. He considers paying higher wages in hopes of attracting better applicants. According to efficiency wage theory Tony will get a a.larger but not better pool of applicants and hire more workers. b.better pool of applicants and hire more workers. c.better pool of applicants but hire fewer workers. d.larger but not better pool of applicants and hire fewer workers.

c.better pool of applicants but hire fewer workers.

The theory of efficiency wages explains why a.the most efficient way to pay workers is to pay them according to their skills and any risks they take. b.setting wages at the equilibrium level may increase unemployment. c.firms may increase productivity and profits by setting wages above the equilibrium level. d.it is efficient for firms to set wages at the equilibrium level.

c.firms may increase productivity and profits by setting wages above the equilibrium level.

The worker health version of the efficiency wage theory is a.equally relevant for explaining unemployment in less developed countries and in developing countries. b.less relevant for explaining unemployment in less developed countries than in developed countries. c.less relevant for explaining unemployment in developed countries than in less developed countries. d.not relevant for explaining unemployment.

c.less relevant for explaining unemployment in developed countries than in less developed countries.

Steve manages a warehouse where workers need to find, pack, and ship items ordered by online customers. He considers raising wages hoping that workers will spend more time doing their work and less time chatting with each other and checking their cell phones. According to efficiency wage theory if Steve decides to pay higher wages a.profits will fall but he will hire more workers. b.profits will rise and he will hire more workers. c.profits will rise but he will hire fewer workers. d.profits will fall and he will hire fewer workers.

c.profits will rise but he will hire fewer workers.

Which famous company executive introduced an innovative pay system that is consistent with the theory of efficiency wages? a.Mark Zuckerberg b.Safara Catz c.Steve Jobs d.Henry Ford

d.Henry Ford

Efficiency wages a.create a surplus of labor and so create frictional unemployment. b.increase turnover and so create frictional unemployment. c.increase turnover and so create structural unemployment. d.create a surplus of labor and so create structural unemployment.

d.create a surplus of labor and so create structural unemployment.

Mary manages a data entry center. Workers sometimes play games on the internet, check their personal email, or go slow. According to efficiency wage theory to reduce this shirking Mary could a.pay above equilibrium wages. This would reduce unemployment. b.pay below equilibrium wages. This would reduce unemployment. c.pay below equilibrium wages. This would raise unemployment. d.pay above equilibrium wages. This would raise unemployment.

d.pay above equilibrium wages. This would raise unemployment.