A Firm Will Employ More of an Input Whose Relative

question 151

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:

Critical Value

A threshold in a statistical test that a test statistic must exceed to reject the null hypothesis.

T-Distribution

A probability distribution that is used to estimate population parameters when the sample size is small and the population variance is unknown.

Population Variances

The measure of dispersion that quantifies how much the values of a population differ from the population mean.

Pooled Estimate

A combined estimate derived from two or more sample estimates, often used in hypothesis testing or meta-analysis.