Suppose that,as a result of a decrease in the market supply of labor,the wage rate has risen 10%.After adjusting its employment level,a firm finds its total wage bill has decreased.This occurrence indicates that the firm's labor demand:

Question

Quizplus · Accepted Answer

If the total wage bill has decreased after the wage rate has risen 10%, it means that the firm has either decreased its employment level, decreased the number of hours worked, or replaced some workers with other factors of production. This indicates that the firm's labor demand is responsive to changes in the wage rate, and therefore, elastic over this range of wages. If the demand were inelastic, the firm would have increased its total wage bill despite the rise in the wage rate because it would not have been able to reduce the amount of labor it employed. Therefore, option B is the best choice.

Suppose That,as a Result of a Decrease in the Market