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Question
Macroeconomics
Posted 10 months ago

The market for hand carved sasquatch figurines is perfectly competitive. The labor market for the workers who carve the figurines is also perfectly competitive. Assume capital and labor are complementary in the production of wooden figurines.

Which of the following increases the demand for labor?
Choose 1 answer:
(A) an increase in worker productivity
(B) an increase in the wage rate
(C) an increase in the price of capital
(D) a decrease in the price of figurines
(E) an increase in the wage rate for workers in other labor markets
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Answer from Sia
Posted 10 months ago
Solution
a
Increase in Worker Productivity and Demand for Labor: An increase in worker productivity means that each worker can produce more output in the same amount of time. This makes labor more valuable to the firm
b
Complementarity of Capital and Labor: When capital and labor are complementary, an increase in the productivity of labor makes capital more productive as well, leading to an increased demand for both inputs
c
Shift in the Demand Curve: An increase in worker productivity shifts the demand curve for labor to the right, indicating a higher quantity of labor demanded at each wage rate
Answer
(A) an increase in worker productivity
Key Concept
Demand for Labor
Explanation
An increase in worker productivity increases the demand for labor, especially when capital and labor are complementary in production. This is because each worker contributes more to the output, making the employment of additional workers more profitable for the firm.

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