Question: State whether each of the following Statements is Tue or False 7. According to the...

Question: State whether each of the following Statements is Tue or False

7. According to the efficient contracts model, the union determines the wage rate and firm determines the employment levels.

8. In the Hicks irrationality of strikes model, a wage settlement occurs at the point of tangency between the union’s indifference curve and the isoprofit curve.

9. If person's indifference curves are relatively flat it means that he/she values work more than leisure.

10. The hedonic theory of wages predicts that workers who value job safety most will tend to work for firms that have the lowest cost of providing safe jobs, ceteris paribus.

11. Internal labour markets are not likely to exist if costs of screening and recruiting job applicants are relatively low.

12. If a jobseeker rejects a wage offer it implies that the expected marginal cost of continued job search is less than the expected marginal benefit of continued job search.

13. The added worker effect is counter-cyclical while the discouraged worker effect is pro-cyclical during recession.

14. If the market interest rate is 10 percent and the internal rate of return is 12 percent, a person should invest in more years of education.

15.   Statistical discrimination can be eliminated in the long run if labour market productivities of all demographic groups converge

Homework Answers

Answer #1

Answer 7


As per this model, both firm and union come to a bargaining agreement where the firm decides the right number of employees and at an agreed wage rate by the union to create strong efficiency in the market

Answer 8


This is because both the union and the firm are willing to give in after the duration of strike such that both the parties are willing to decide on an agreed wage rate and by making a trade-off between the higher wage rate and foregone production for union and firm respectively.

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