No wonder GMAC dropped this one. Knowledge of purchasing power is somewhat too "business" .
Anyway :
Quote:
If new working practices raise a firm's productivity, will the firm respond by paying its workers more? Not in a competitive market. In such a market the firm, to gain a competitive edge, will reduce prices. The workers' real wages, as measured by those wages' purchasing power, will still rise because of lower prices.
Understand : 1) productivity increases > no salary increase.
2) company will reduce prices of products to stay competetive.
3) real wages = wasges' purchasing power (that means if for eg my salary is 100 $ and i can afford two apples. (50$ per apple ) ..Now my salary is still 100$ but i can afford 5 apples ( 20$ per apple .) SO basically my salary's power has increased. Initially with 100 i could buy 2 , but now i can buy 5 with same 100 so my 100 is much more powerful ) That is purchasing power .
4) Workers' real wages(salary's puchasing power) will rise.
Quote:
In a competitive market which of the following, if true, ensures that the workers of a firm that achieved productivity gains will derive from these gains the benefit of higher real wages?
-ASSUMPTION Question- Basicaly we want an Answer that will
ensure( make us believe more) that THOUGH the salary is SAME, the salary's purchasin power will increase.
Think : The author says that even though the salary doesnt rise the purchasing power of that salary rises ?? how ?? He also says that company will reduce prices. Consider a comapny that charges 50 for 1 apple. My salary = 100 . so my purchasing power 2 ( 100 getting me 2 apples). But if comapny lowers is price to 20 , then my purchasing power has increased. to 5 ( 5 apples per 100) . But only if i buy that company's product.
Quote:
A) The workers' firm continues to achieve productivity gains.
- Does not tell us how the purchasing power will increase. Even if the productivity gains continues , we still do not know how gains are linked to increased purchasing power.
Quote:
(B) Other firms do not achieve comparable productivity gains.
-Even if other firms achieve comparable prices, the conclusion may still stand . At the end the workers are going to purchase a cheaper product.
does not breal the conclusion when negated.
Quote:
(C) The workers buy products made by the firm that employs them. - CORRECT
- Consider two companies A and B . A's apples = 50 $ . B's aplles= 50$ . workers work in company A and company A to be comapetetive lowers the price of the apple to 20 . Now my purchasing power will only increase if i purchsae A's product and not B's.
Quote:
(D) The workers prefer the new working practices over the old
.
- Workers' preference is not relevamt to purchasimg power
Quote:
(E) The firm pays its workers at or above the industry's average
- Paying prices at or above a par , does not help us. Evem of the firm pays wages below the par , the products' lower price may still be prosperous to the workers / may still get them atleast something more than the value they paid BEFORE .