The labor demand curve slopes downward because
A) firms wish to hire fewer workers as the wage rate increases
B) households wish to hire fewer workers as the wage rate decreases
C) firms wish to hire more workers as the wage rate increases
D) firms wish to supply fewer workers as the wage rate increases
E) households wish to provide fewer hours of work as the wage rate decreases

Question

Quizplus · Accepted Answer

The labor demand curve slopes downward because, all else equal, as the wage rate increases, firms are willing to hire fewer workers in order to control labor costs and maintain profitability. The cost of labor is a significant expense for firms, and as the wage rate increases, the marginal cost of additional workers also increases. Therefore, firms will only hire additional workers if the productivity of each worker is high enough to offset the increased cost. This leads to a downward sloping labor demand curve.

The Labor Demand Curve Slopes Downward Because