Labor Demand Is More Elastic the Greater the Elasticity of Substitution

question 7

Multiple Choice

Labor demand is more elastic the greater the elasticity of substitution between labor and capital because

• A) workers supply more labor when their wage increases.
• B) the firm's output price falls when the firm produces more output.
• C) a firm is less willing to pay higher labor costs if it is easy for the firm to substitute capital for labor.
• D) firms always have the option of substituting capital for labor.
• E) a firm's technology is slow to change.

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Definitions:

Demand Shifts

Movements of the demand curve to the left or right in a market diagram, indicating a change in the amount consumers are willing and able to purchase at various prices.

Equilibrium Price

The cost at which the amount of a product or service that consumers want to buy matches the amount available for sale, leading to a state of equilibrium in the market.

Supply Shifts

Supply shifts refer to changes in the supply curve caused by factors other than price, such as technology, production costs, and supplier expectations, leading to different quantities being supplied at the same price.

Surplus

The situation in which the quantity of a good or service supplied exceeds the quantity demanded, often leading to lower prices.