In comparing two otherwise identical industries X and Y,an economist finds that labor demand is less elastic in industry X.Which of the following would support this finding?
A)Capital and labor are less easily substituted for one another in X than in Y
B)Labor costs as a percentage of total costs are relatively higher in X than in Y
C)Product demand elasticity is higher in X than in Y
D)Substitute resources have a more elastic supply in X than in Y

Question

Quizplus · Accepted Answer

Labor demand is less elastic in industry X because capital and labor are less easily substituted for one another in X than in Y. This means that even if the wage rate increases in industry X, firms may not be able to substitute capital for labor easily, so the demand for labor will not decrease as much as it would in industry Y where capital and labor are easily substitutable.

In Comparing Two Otherwise Identical Industries X and Y,an Economist