A Firm Will Employ More of an Input Whose Relative

question 151

Multiple Choice

A firm will employ more of an input whose relative price has fallen and, conversely, will use less of an input whose relative price has risen. Thus, a fall in the price of capital will increase the relative price of labor and thereby reduce the demand for labor. This describes the

• A) output effect.
• B) substitution effect.
• C) idea of derived demand.
• D) law of diminishing returns.

---

Definitions:

Mailed Postcards

Physical cards, often decorative or photo-based, sent through postal services to convey messages across distances.

Perception

The cognitive process of interpreting and organizing sensory information to understand the environment.

Hypnotized

The state of having one's attention, awareness, and consciousness altered by hypnosis, making the individual more open to suggestion.

Visual and Auditory Receptors

Sensory cells located in the eyes and ears, responsible for converting light and sound waves into signals that can be interpreted by the brain.