Two resource inputs, capital and labor, are complementary and used in fixed proportions. An increase in the price of capital will
A) increase the demand for labor.
B) decrease the demand for labor.
C) decrease the quantity demanded for labor.
D) have no effect, because the relationship is fixed.

Question

Quizplus · Accepted Answer

Since capital and labor are complementary goods, they are used in fixed proportions. An increase in the price of capital will make it more expensive to produce goods, so firms will want to use less capital and more labor. Therefore, the demand for labor will decrease.

Two Resource Inputs, Capital and Labor, Are Complementary and Used