Explain the effect of self-selection on compensating wage differential.
What will be an ideal response?
The extra wage that is paid to a worker to work in a less desirable environment is called a compensating wage differential. From a firm's point of view, it is cheaper to pay more than to make the environment tolerable. From the workers' point of view, the extra wage is a good incentive to offer their services. Thus, risk-loving workers choose risky jobs and firms with risky jobs look for risk-loving workers and pay them the compensating wage differential. This is the process of self-selection. This matching reduces the compensating wage differential, compared to what it would be in a market where the firm had to hire workers randomly from a pool.
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Which of the following is not an example of an economic trade-off that a firm has to face?
A) whether it is cheaper to produce with more machines or with more workers B) whether it should produce more of its product C) whether or not consumers will buy its products D) whether it is to outsource the production of a good or service
Under the gold standard, a country that is experiencing a gold outflow
a. has a balance of payments deficit. b. has a shrinking money supply. c. is experiencing a fall in output. d. All of these.
Which of the following is an approach used by economists to calculate the value of a human life?
a. comparing the salaries of people who live in cities with more traffic lights to those who live in cities with fewer traffic lights b. comparing the wages of more risky occupations to less risky occupations c. comparing the costs of vehicles with safety features such as side-impact airbags to those without such safety features d. All of the above are correct.
Suppose the velocity of money decreases because consumers become more reluctant to spend. If the money supply is unchanged and prices can't adjust in the short run (sticky prices), then according to the quantity theory of money, what must happen to short-run output?
What will be an ideal response?