(a) Assume a competitive labor market. Draw the demand of labor curve for an individual firm. Assume that the firm faces a labor supply curve that is neither perfectly inelastic nor perfectly elastic. If the firm has the ability to command more effort and output from workers once they are hired, then what is occurring to the labor demand curve?
(b) Using the graph in your answer to (a), clearly identify any gains and losses to the producer and worker surpluses.
(c) Is unemployment a result of this alteration of labor demand (as in efficiency wage theories)?