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Macroeconomics
Posted 10 months ago
Capital and labor are complementary in the production of chupacabra figurines. Assume factor markets are perfectly competitive.
Which of the following decreases the demand for labor?
Choose 1 answer:
(A) A decrease in the wage rate
(B) The cost of capital decreases
(C) The demand for chupacabra figurines decreases.
(D) An increase in the wage rate for workers in other labor markets
(E) Worker productivity increases
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Answer from Sia
Posted 10 months ago
Solution
a
Complementarity of Capital and Labor: When capital and labor are complementary, an increase in the quantity or quality of one increases the productivity of the other
b
Decrease in Demand for Labor: A factor that decreases the demand for labor would make labor less necessary or productive in the production process
c
Analysis of Options:
- (A) A decrease in the wage rate would not decrease the demand for labor; it might increase it due to the law of demand.
- (B) If the cost of capital decreases, firms may use more capital but this does not directly decrease demand for labor since they are complements.
- (C) A decrease in the demand for chupacabra figurines would decrease the demand for labor as fewer goods need to be produced.
- (D) An increase in the wage rate for workers in other labor markets could potentially draw workers away, but it does not decrease the demand for labor in the market for chupacabra figurines.
- (E) Worker productivity increases would typically increase the demand for labor, as each worker is more valuable
Answer
(C) The demand for chupacabra figurines decreases.
Key Concept
Demand for Labor
Explanation
A decrease in the demand for the final product (chupacabra figurines) directly leads to a decrease in the demand for labor, as less labor is needed to produce fewer goods.
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