If new working practices raise a firm s productivity, will

my choice is C

The only way the worker will gain without wage increase is by buying their company's products, which prices are going down.

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.

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?

(A) The workers' firm continues to achieve productivity gains.
(B) Other firms do not achieve comparable productivity gains.
(C) The workers buy products made by the firm that employs them.
(D) The workers prefer the new working practices over the old.
(E) The firm pays its workers at or above the industry's average.
---------

I do not like this question at all. But the logic here is that in competitive market the firm will not play more to it's workers, so the wages of these workers will remain the same, But
the real wages will become higher if the workers buy the cheaper production.
So yes, it is only C.

No wonder GMAC dropped this one. Knowledge of purchasing power is somewhat too "business" .
Anyway :



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.

-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.


- 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.


-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.


- 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.

.
- Workers' preference is not relevamt to purchasimg power


- 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 .

A tough one for me. Even after analyzing OA a dozen times, I dont see how it fits as a solution. The aim here is though salaries dont rise lets make the cost prices less. As per option A, if workers go on increasing the company's productivity, the same price cut would be applicable making the same/higher purchasing potential.

The only reason i think A is the OA is because when a particular firm's productivity increases, the price of their products drop. Subsequently other competitors also drop their prices to stay in the market(although we don't know they make profit or not) this reduces prices overall and they have a greater advantage than option C.

Understanding the argument -
If new working practices raise a firm's productivity, will the firm respond by paying its workers more? - Question
Not in a competitive market. - Fact
In such a market the firm, to gain a competitive edge, will reduce prices. - Fact
The workers' real wages, as measured by those wages' purchasing power, will still rise because of lower prices. - Conclusion

Option Elimination -

(A) The workers' firm continues to achieve productivity gains. - But this doesn't ensure that the workers will derive the benefit of higher real wages.
(B) Other firms do not achieve comparable productivity gains. - Out of scope.
(C) The workers buy products made by the firm that employs them. - ok.
(D) The workers prefer the new working practices over the old. - Out of scope.
(E) The firm pays its workers at or above the industry's average. - Out of scope.