What is the relationship between wages and productivity in a free enterprise system?

• A. Higher productivity leads to lower wages
• B. Wages have no correlation to productivity
• C. Higher productivity usually results in higher wages
• D. Wages are determined solely by market demand

Answer: (C)

In a free enterprise system, the relationship between wages and productivity is fundamentally connected to the concept that increased productivity often leads to higher wages. When workers are more productive, they can produce more goods or services in the same amount of time, contributing to a company's overall output and profitability. As firms become more efficient, they tend to see an increase in revenue, which can be shared with employees in the form of higher wages.

This relationship stems from the idea that when employees generate more value, employers are typically willing to compensate them accordingly to retain and motivate their workforce. Higher wages can also enhance employee satisfaction and productivity, creating a positive feedback loop that benefits both workers and companies.

The other choices do not accurately reflect the typical dynamics observed in a free enterprise system. For instance, the notion that higher productivity would lead to lower wages contradicts the fundamental economic principle where increased output is often rewarded. Similarly, the idea that wages have no correlation to productivity overlooks the basic economic premise that compensation is generally linked to the value and output produced by workers. Lastly, while market demand influences wages, it does not solely determine them; productivity is a crucial factor in wage levels as well.