An Increase in the Price of a Particular Factor Will

question 41

Multiple Choice

An increase in the price of a particular factor will:

• A)usually result in the substitution of other factors for this factor, and hence will cause quantity of this factor demanded to fall.
• B)have no effect on the amount of it being used, according to the principle of least-cost, which requires only the MP of each factor be proportional to its price, not equal to it.
• C)not result in diminished use of this factor if output is not decreased at the same time.
• D)result in less employment only if firms have monopoly power in product markets.
• E)cause the marginal revenue product curve for this factor to shift downward.

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Definitions:

Output

The total amount of goods or services produced by a firm, industry, or economy within a specified time period, reflecting the level of production activity.

Unemployment

The situation in which individuals who are capable of working and willing to work cannot find employment.

Short-run Phillips Curve

A graphical representation showing an inverse relationship between the rate of inflation and the unemployment rate in the short-term.

Long-run Phillips Curve

The long-run Phillips Curve illustrates the theory that over time, the relationship between inflation and unemployment stabilizes, suggesting no long-term trade-off between the two.