If the Price of Labor Falls

question 116

Multiple Choice

If the price of labor falls,

• A) we can conclude that the demand for capital will always decrease because only the input-substitution effect is relevant.
• B) we can conclude that the demand for capital will always increase because only the output effect is relevant.
• C) the change in the demand for capital cannot be predicted because the input-substitution effect and output effect work in opposite directions.
• D) the demand for capital will be unaffected, because only a change in the price of capital would change the demand for capital.

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Definitions:

Cups Per Day

A unit of measurement reflecting the number of cups (of a substance, typically a beverage like coffee or tea) consumed by an individual or population within a single day.

Demand Schedule

A table that shows the quantity of a product or service demanded at various prices.

Quantity Demanded

The amount of a good or service that consumers are willing and able to purchase at a given price.

Price

A measure of the monetary value assigned to a product or service, indicating what must be given up to obtain it.