Suppose capital and labor must be used in fixed proportions to produce widgets and that the price elasticity of demand for widgets is zero.Then the wage elasticity of demand for labor by widget makers will be:
A)+1.
B) 1)
C)0.
D)infinite.

Question

Suppose capital and labor must be used in fixed proportions to produce widgets and that the price elasticity of demand for widgets is zero.Then the wage elasticity of demand for labor by widget makers will be:
A)+1. 
B) 1) 
C)0. 
D)infinite.

Quizplus · Accepted Answer

If the price elasticity of demand for widgets is zero, it means that the quantity demanded of widgets remains the same no matter how much the price changes. Therefore, the demand for labor by widget makers will not change because the output produced by each unit of labor and capital is fixed. Hence, the wage elasticity of demand for labor by widget makers will also be zero, as there will be no change in the quantity of labor demanded for producing the fixed output level.

Suppose Capital and Labor Must Be Used in Fixed Proportions