Does the statement provide a good justification for not using a model when thinking about the supply side of the economy?
Read the following statement and then answer the questions below: 'Just by looking at realworld labour markets, it is obvious they are far too complex to be accurately modelled by either the efficiency wage model or the textbook model with complete contracts'. [Hintz the textbook model is set out in the Appendix]
(a) Does the statement provide a good justification for not using a model when thinking about the supply side of the economy?
(b) What are the key predictions of the efficiency wage model and the textbook model with complete contracts?
(c) The predictions of which model more closely match what we observe by analysing real world data? Provide examples to justify your answer.
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