If unskilled labor and capital are substitutes,
A) the demand for unskilled labor increases when the price of capital decreases.
B) the cross-elasticity between unskilled labor and capital is positive.
C) the price of unskilled labor decreases when the price of capital increases.
D) the price of capital is increasing.
E) the demand curve for capital is upward sloping.

Question

Quizplus · Accepted Answer

Substitutes have a positive cross-elasticity, meaning if the price of one increases, the demand for the other increases as well. This applies to unskilled labor and capital when they are substitutes.

If Unskilled Labor and Capital Are Substitutes