Question

Assume that the price of capital equipment, which can be used as a substitute for labor, decreases, and the substitution effect exceeds the output effect. Which of the following effects would the declining price of capital have in a perfectly competitive labor market? 1. The demand for labor would decrease. II. The industry wage would decrease. III. The cost of production would increase. IV. The price of the product would increase?

Answer 1

A: The demand for labor would decrease.

B: The industry wage would decrease.

Step-by-step explanation:

The following effects the declining price of capital will have in a perfectly competitive labor market:

A: The demand for labor would decrease.

B: The industry wage would decrease.