If the price of capital declines, the consequent output effect would be
A)greater, the more elastic the demand for the product.
B)greater, the less elastic the demand for the product.
C)negative.
D)of consequence only if capital and labor are used in fixed proportions.

Question

Quizplus · Accepted Answer

When the price of capital declines, firms can produce at a lower cost, potentially increasing output. The output effect is greater when the demand for the product is more elastic because consumers are more responsive to price changes, leading to a larger increase in quantity demanded.

If the Price of Capital Declines, the Consequent Output Effect