When drawn against the current real wage,the labour demand curve is
A) upward sloping because the marginal product of labour rises with the quantity of labour employed.
B) upward sloping because the marginal product of labour declines with the quantity of labour employed.
C) downward sloping because the marginal product of labour rises with the quantity of labour employed.
D) downward sloping because the marginal product of labour declines with the quantity of labour employed.
E) downward sloping because the marginal product of labour is constant.

Question

Quizplus · Accepted Answer

The labour demand curve is downward sloping because as the quantity of labour employed increases, the marginal product of labour (the additional output produced by each additional unit of labour) declines. This happens because of the law of diminishing marginal returns where additional units of labour lead to decreasing marginal productivity due to the limited availability of other factors of production. As a result, employers are willing to hire fewer workers at higher wages and more workers at lower wages, leading to a downward sloping labour demand curve.

When Drawn Against the Current Real Wage,the Labour Demand Curve