The following figure displays the determination of real wage and employment in t

Question

The following figure displays the determination of real wage and employment in the efficiency wage model. Find the level of real wage reached after full adjustment of wages and prices. Find the level of employment reached after full adjustment of wages and prices. [That is the full-employment level of employment in this model.) How does a shift of the labor supply curve to the right affect the full-employment level of employment? Find the amount of unemployment reached after full adjustment of wages and prices.

Explanation / Answer

a) We

b) N2

c) level of employment increases

d) level of unemployment = N3 - N2

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