If the Price of Labor Falls Relative to the Price

question 156

Multiple Choice

If the price of labor falls relative to the price of capital, and as a result the quantity of capital employed decreases, then it can be concluded that

• A)the substitution effect is greater than the output effect.
• B)the output effect is greater than the substitution effect.
• C)the income effect is greater than the output effect.
• D)labor cannot be easily substituted for capital.

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