The theory of efficiency wages explains why

A) setting wages at the equilibrium level may increase unemployment.
B) it may be in the best interest of firms to offer wages that are above the equilibrium level.
C) the most efficient way to pay workers is to pay them according to their skills.
D) it is efficient for firms to set wages at the equilibrium level.

Efficiency Wages

A theory suggesting that employers pay higher than the market-clearing wage to increase worker productivity, loyalty, and satisfaction, thus reducing turnover and shirking.

Equilibrium Level

The state in which market supply and demand balance each other, and, as a result, prices become stable.

Increase Unemployment

Refers to a situation where the number of individuals in a workforce who are without a job, and are actively seeking employment, rises.