Higher energy prices in the 1970s reduced labor productivity because
A) energy and capital are substitute inputs.
B) the rise in energy prices tended to push firms away from labor-intensive measures and toward more capital-intensive techniques.
C) a great deal of investment went into transforming the existing capital stock into more energy-efficient forms.
D) labor productivity has been lower when used with more capital-intensive techniques.

Question

Quizplus · Accepted Answer

The rise in energy prices during the 1970s led to significant investments in making the existing capital stock more energy-efficient. This shift was a direct response to the higher costs of energy, as firms sought to reduce their energy consumption and improve efficiency, rather than a move towards more capital-intensive techniques or a substitution effect between energy and capital.

Higher Energy Prices in the 1970s Reduced Labor Productivity Because