The Input-Substitution Effect of an Increase in the Wage Comes

question 170

Multiple Choice

The input-substitution effect of an increase in the wage comes about because higher wages

• A) increase production costs, and final good prices will rise, reducing the quantity demanded of the product.
• B) increase production costs, and final good prices will rise, increasing the quantity demanded of the product.
• C) make labor less expensive as an input, leading firms to switch to labor as an input.
• D) make labor more expensive as an input, leading firms to switch to other inputs.

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Definitions:

Net Income

The amount of money remaining after all operating expenses, taxes, interest, and dividends are deducted from total revenue; a key indicator of company profitability.

Retained Earnings

The portion of a company's profits that is held or retained and not paid out as dividends to shareholders, often used for reinvestment in the business.

Dividends

Profits distributed by a corporation to its shareholders from its earnings.

Classified Balance Sheet

A detailed financial statement that separates assets, liabilities, and equity into subcategories for clearer analysis.