The output effect is defined as

Question

Quizplus · Accepted Answer

The output effect is the change in the demand for a factor of production resulting from a change in the quantity of output produced. It is caused by the change in the marginal product of the factor. When the quantity of output increases, the demand for the factor increases as well because more inputs are needed to produce more output. Therefore, the output effect is the change in the quantity of labor demanded resulting from a change in the quantity of output produced. Option A and D are incorrect because they refer to substitution effect, which is the change in the demand for a factor of production resulting from a change in the relative price of factors. Option C is also incorrect as it refers to cross-price elasticity effect.

The Output Effect Is Defined as