If the output price of a product rises, the demand for capital will increase, raising the rental price of capital.

Question

Quizplus · Accepted Answer

When the output price of a product increases, it becomes more profitable for firms to produce more of that product. To increase production, firms demand more capital (machinery, equipment, etc.). As the demand for capital increases, the rental price of capital also rises due to higher demand.

If the Output Price of a Product Rises, the Demand