In comparing two otherwise identical industries X and Y,an economist finds that labor demand is more 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 lower in X than in Y
C)Product demand elasticity is higher in X than in Y
D)Substitute resources have a less elastic supply in X than in Y

Question

Quizplus · Accepted Answer

Labor demand elasticity is often related to the elasticity of product demand. Therefore, industry X may have a more elastic labor demand because product demand in that industry is more elastic than in industry Y. This means that small changes in price result in greater changes in quantity demanded, which in turn requires firms in industry X to adjust their labor demand more frequently.

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