Jonathon, runs a hybrid-car factory which uses both machines (capital) and workers (labour) in production.Capital can be substituted for labour and vice-versa, that is, a given job in the factory can either be performed by a machine or a worker.Which of the following situations is likely to lead to a change in Jonathon's demand for labour (that is, a shift in the labour demand curve)?
(i) a recession leads to many new workers looking for employment
(ii) the government announces new, extremely restrictive fuel efficiency standards for cars
(iii) the price of machines used in Jonathon's factory decreases

Question

Quizplus · Accepted Answer

(i) A recession leading to many new workers looking for employment would not shift the demand curve for labour as it only affects the supply of labour.
(ii) The government announcing new, extremely restrictive fuel efficiency standards for cars would lead to a shift in the demand curve for labour because this would require more workers with specialized skills to design and implement the necessary changes to meet the new standards.
(iii) The price of machines used in Jonathan's factory decreasing would also lead to a shift in the demand curve for labour as it would make it more attractive to use machines instead of labour. However, this shift would be a decrease in the demand for labour, therefore, a shift to the left. 
Thus, only (ii) and (iii) would lead to changes in the demand curve for labour.

Jonathon, Runs a Hybrid-Car Factory Which Uses Both Machines (Capital)