The change in the quantity of labor demanded resulting from a change in the relative cost of labor is known as the ________ effect.

Question

Quizplus · Accepted Answer

The input-substitution effect occurs when a change in the relative cost of labor (compared to other input factors) causes firms to substitute cheaper inputs for labor. This, in turn, leads to a change in the quantity of labor demanded at a given wage rate. Option B) price elasticity refers to the responsiveness of quantity demanded to changes in price, and is not directly related to changes in the cost of labor. Option C) output simply refers to the quantity of goods or services produced, and is not directly related to changes in labor costs. Option D) derived demand refers to the demand for a factor of production (like labor) that is used to produce another good, and is not specific to changes in labor costs.

The Change in the Quantity of Labor Demanded Resulting from a Change