Assume the Price of Capital Falls Relative to the Price

question 226

Multiple Choice

Assume the price of capital falls relative to the price of labor and, as a result, the demand for labor increases. Therefore,

• A)capital is very highly substitutable for labor.
• B)the output effect is greater than the substitution effect.
• C)the income effect is greater than the output effect.
• D)the substitution effect is greater than the output effect.

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