The figure given below represents equilibrium in the labor market with the demand and supply curves of labor.Figure 14.6
In the figure,
D = MRP implies demand for labor = Marginal Revenue Product
MFC represents Marginal Factor Cost curve
S represents the supply curve of labor

-If resource A and resource B are substitutes of each other and the price of resource A increases, then:
A)the price elasticity of demand for resource B will increase.
B)the demand for resource A will increase.
C)the demand for resource B will increase.
D)the price elasticity of demand for resource B will decrease.
E)the demand for resource B will decrease.

Question

The figure given below represents equilibrium in the labor market with the demand and supply curves of labor.Figure 14.6
In the figure,
D = MRP implies demand for labor = Marginal Revenue Product
MFC represents Marginal Factor Cost curve
S represents the supply curve of labor
 
-If resource A and resource B are substitutes of each other and the price of resource A increases, then:
A)the price elasticity of demand for resource B will increase. 
B)the demand for resource A will increase. 
C)the demand for resource B will increase. 
D)the price elasticity of demand for resource B will decrease. 
E)the demand for resource B will decrease.

Quizplus · Accepted Answer

If A and B are substitutes of each other and the price of A increases, then firms will substitute A for B. This means that the demand for B will increase, leading to an increase in the quantity of B demanded, and a shift of the demand curve for B to the right. Therefore, C is the correct answer. None of the other choices are correct.

The Figure Given Below Represents Equilibrium in the Labor Market