According to the output effect of a labor price decrease, when supply of labor increases, firms eventually increase output and demand for all inputs.

Question

Quizplus · Accepted Answer

When the price of labor decreases, the supply of labor increases. This would lead to a decrease in the cost of production for the firms, which in turn would lead to an increase in their output. As output increases, the demand for all inputs, including labor, also increases. Therefore, the statement is true.

According to the Output Effect of a Labor Price Decrease