Assuming all else equal,if the price of each unit of capital rises,________.
A) a firm's labor demand curve will shift to the left
B) a firm's labor demand curve will shift to the right
C) a firm will move to a lower point along its labor demand curve
D) a firm will move to a higher point along its labor demand curve

Question

Quizplus · Accepted Answer

When the price of capital rises, firms tend to substitute labor for capital, increasing the demand for labor. This is represented by a rightward shift in the labor demand curve, not a movement along the curve. However, the correct interpretation of the economic theory was mistakenly inverted in the selection of the answer. The correct economic theory suggests that as the price of capital increases, firms may substitute labor for capital, making them more likely to increase their demand for labor, which would shift the labor demand curve to the right, not to the left.

Assuming All Else Equal,if the Price of Each Unit of Capital