A Firm Will Employ More of an Input Whose Relative

question 253

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.

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Definitions:

Productivity Growth

The rate at which a company or country can produce more goods or services with the same amount of labor and resources.

U.S.

The United States of America is a country consisting of 50 states, a federal district, five major self-governing territories, and various possessions, known for its significant influence in global political, cultural, and economic affairs.

Percent

A mathematical term used to describe a number as a fraction of 100.

Per-Worker Production Function

A mathematical relation showing the output produced per worker as a function of the level of capital per worker, holding technology constant.