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:

Expense Ratio

The measure of what it costs an investment company to operate a mutual fund, expressed as a percentage of the fund's assets.

Mutual Fund

An investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.

Net Asset Values

The value of an entity's assets minus the value of its liabilities, often used in relation to investment funds.

Money Market Funds

Investment funds that invest in short-term debt securities, such as treasury bills and commercial paper, offering investors high liquidity with a relatively low level of risk.