Other things equal,the own-wage elasticity of demand for a category of labor is higher when
A) the price elasticity of demand for the product being produced is low.
B) other factors of production can be easily substituted for the category of labor.
C) the supply of other factors of production is highly inelastic.
D) the cost of employing the category of labor is a small share of the total costs of production.

Question

Quizplus · Accepted Answer

When other factors of production can be easily substituted for a category of labor, the demand for that labor becomes more elastic because firms can easily switch to other inputs that are relatively cheaper in response to changes in the wage rate. This makes it more likely that a small increase in the wage rate will lead to a significant reduction in the demand for that labor, resulting in a higher own-wage elasticity of demand.

Other Things Equal,the Own-Wage Elasticity of Demand for a Category