The demand curve for labor will slope downward because of:

Question

Quizplus · Accepted Answer

The demand curve for labor will slope downward due to both the input-substitution effect and the output effect. The input-substitution effect occurs when a firm substitutes the use of one input (such as labor) for another input (such as capital) in response to changes in relative input prices. This can lead to a decrease in the demand for labor if capital becomes relatively cheaper. The output effect occurs because, as the wage rate increases, the cost of producing each unit of output also increases. This can lead to a decrease in the quantity of labor demanded as firms may reduce their output levels in response to the higher costs.

The Demand Curve for Labor Will Slope Downward Because Of