Suppose capital and labor are used in fixed proportions so that each machine requires only one worker. If a decline in the price of capital occurs, then the demand for labor will:
A. decrease solely because of the substitution effect.
B. increase solely because of the substitution effect.
C. increase solely because of the output effect.
D. decrease solely because of the output effect.
Answer: C
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Which of the following statements is true?
A) A decrease in demand causes equilibrium price to fall; the decrease in price then results in a decrease in quantity supplied. B) If both demand and supply increase, there must be an increase in equilibrium price; equilibrium quantity may either increase or decrease. C) If demand decreases and supply increases one cannot determine if equilibrium price will increase or decrease without knowing which change is greater. D) A decrease in demand causes a decrease in equilibrium price; the decrease in price causes supply to decrease.
When a nation's institutional environment is more favorable, it will
a. attract more physical investment. b. encourage individuals to invest more heavily in human capital. c. encourage the development and efficient use of natural resources. d. all of the above.