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Which of the following statements is correct ?
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- Most workers will work for less than their reservation wage.
- The reservation wage is the maximum amount any firm will pay for a worker.
- Economic rent is the difference between the market wage and the reservation
wage.
- Economic rent is the amount one must pay to enter a desirable labour market.
- Most workers will work for less than their reservation wage.
Correct Option: C
The difference between the actual market wage and the reservation wage is called economic rent. Therefore, the lower a person’s reservation wage compared to the actual wage, the more rent they receive. While labour supply decisions determine the reservation wage, the employment decisions of firms establish the value of the real wage at which any person becomes unemployed (The Goals of Macroeconomic Policy by Martin Prachowny, p. 58).
