Question

Olivia is considering working a secretary job for a small law firm. Given the opportunity costs of working the job, she will not accept a
wage less than $12 per hour. Which of the following is likely to raise Olivia's reservation wage?
A.Olivia learns that employees are paid bonuses at the end of every month.
B.Olivia has spent all of her savings and is struggling to pay rent.
C.Olivia learns that the job is more challenging than she initially thought.
D.Olivia takes on more debt and is struggling to make payments on time

Answer 1

What would likely raise Olivia's reservation wage is if Olivia learns that the job is more challenging than she initially thought

Reservation price is the least amount of wage that a worker would be willing to accept for services rendered.

Factors that lead to changes in reservation wages

• Finances: a worker that is in debt or in desperate need of money would have a lower reservation wage when compared with a person that is debt-free. For example, the reservation wage of a billionaire would be higher than the reservation wage of an homeless individual.

• Nature of the job: the more challenging a job is, the higher the reservation wage that would be demanded by a worker.

• Length of unemployment: the longer a person has been unemployed for, the lower the reservation wage.

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