Question

1. If wage decreases relative to the price capital, then the effects of this on the demand for capital is inconclusive.

   True

   False

1.5 points   

QUESTION 19

1. Assume that labor and capital are imperfect substitutes. Then the marginal rate of technical substitution (MRTS) of an isoquant is decreasing.

   True

   False

1. According to the substitution effect, an increase in the wage will increase the marginal cost of production, leading to an increase in output.

   True

   False

1.5 points   

QUESTION 16

1. If demand for labor is inelastic, then the percentage change in wage is less than the percentage change in employment.

   True

   False

1.5 points   

QUESTION 17

1. The initial effect from technological change is to reduce the demand for labor.

   True

   False

Answer 1

Answer-1. False

A decrease in the wages cause an increase of the short run aggregate supply curve, aggregate supply determinant include technology, energy price and the capital stock. The amount of enterprenuers want to invest is called demand for capital. It is the amount that the enterprenuers need to purchase capital goods like equipments, plant, machine , tools etc, which can be used for the production of the good and services.

Answer-2. True

Imperfect substitute refers to a product or service that cannot be used in exactly the same way as the good or service it replaces. Imperfect substitutes have a lesser level of substitutability, and therefore exhibit variable marginal rates of substitution along the consumer indifference curve. If the factors of production are imperfect substitution. The Isoquant curve will negative slope to represent Marginal Rate of Technical Substitution (MRTS) between labor and capital.

Answer-3. True

The substitution effect of higher wages means worker will give up leisure to do more hours of work because work has now a high reward, so the substitution effect, an increase in the wage will increase the marginal cost of production, leading to an increase in output.

Answer-4. True

The demand for labour is said to be inelastic when a percent increase in wages will lead to a proportionately smaller decline in employment.So, if demand for labor is inelastic, then the percentage change in wage is less than the percentage change in employment.

Answer-5. True

An industry robot does not need a human operater. The negative effect is that robots displace current worker from their occupation. So, the initial effect from technological change is to reduce the demand for labor.