A change in a factor's price will have a greater effect on the quantity of the factor demanded the
A) smaller the change in the factor's price.
B) smaller the factor's share of total cost of production.
C) more elastic is the demand for the product the factor helps to make.
D) more inelastic is the demand for the product the factor helps to make.

Question

Quizplus · Accepted Answer

If the demand for the product that the factor helps to make is elastic, then a change in the price of the factor will have a greater effect on the quantity of the factor demanded because a small increase in the price of the factor will lead to a relatively large decrease in the demand for the product, causing a decrease in the demand for the factor. Conversely, if the demand for the product is inelastic, then a change in the price of the factor will have a smaller effect on the quantity of the factor demanded. Therefore, the more elastic the demand for the product is, the greater effect a change in the factor's price will have on the quantity of the factor demanded.

A Change in a Factor's Price Will Have a Greater