An Industry Utilizes Capital and Two Types of Labor

question 337

Multiple Choice

An industry utilizes capital and two types of labor. Unskilled labor is a substitute for capital while the skilled labor is complementary to capital. An increase in the price of capital will

• A) cause the demand for labor to increase, raising wages of both skilled and unskilled labor.
• B) cause the wage of unskilled labor to rise relative to the price of skilled labor.
• C) induce the firms in the industry to cut back on all levels-capital, unskilled and skilled labor.
• D) cause the demand for skilled labor to rise and the demand for unskilled labor to fall.

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