The availability of good substitutes for labor in the production process makes the demand curve for labor more _____, so increasing minimum wage in this case will lead to _____ unemployment.
A) elastic; higher
B) elastic; lower
C) inelastic; higher
D) inelastic; lower

Question

Quizplus · Accepted Answer

When there are good substitutes for labor, the demand curve for labor becomes more elastic because firms can easily switch to those substitutes if the cost of labor increases (such as through a higher minimum wage). This leads to a larger decrease in the quantity of labor demanded, hence higher unemployment.

The Availability of Good Substitutes for Labor in the Production