When do firms pay efficiency wages? What is the relationship between moral hazard and efficiency wages?
What will be an ideal response?
Moral hazard arises in a workplace when an employer (principal) either cannot observe the actions of his employees (agents) or it is prohibitively expensive to monitor employees. Paying efficiency wages is consistent with profit maximization in a world of asymmetric information. An employee has an incentive to shirk because he knows that it is difficult for his employer to monitor his behavior. By paying higher-than-equilibrium wages, an employer increases the opportunity cost of being fired from the job and so provides an incentive for employees to work hard.
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In economics, the word "aggregate" refers to
A) the government. B) how individual households differ from each other. C) the public sector itself. D) an economy as a whole.
In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate
a. foreign residents want to buy more U.S. goods and services. b. U.S. residents want to buy fewer foreign goods and services. c. Both A and B are correct. d. None of the above is correct.
When real GDP is in equilibrium there will be no tendency
A. to save. B. for real GDP to increase or decrease. C. to invest. D. to import.
What is the result of an agricultural support price established above the equilibrium price?
A) The market gravitates toward and remains in equilibrium. B) There will be excess quantity supplied of the product involved. C) There will be excess quantity demanded the product in this market. D) Since the support price is set above the equilibrium price, it will have no impact on the market price.