Question
The next few questions are on elasticities. Suppose in the long run, wages increase from $20 to $30. (12 points) a) Quantity of labor decreased
The next few questions are on elasticities. Suppose in the long run, wages increase from $20 to $30. (12 points) a) Quantity of labor decreased by 15%. What is the labor demand elasticity? (4 points) b) Suppose in the long run, capital prices increase by 20% and quantity of labor increased by 15%. What is the cross elasticity of capital and labor? Is it a substitute or complement? (4 points) c) Using your answer from part (b), explain whether substitution or the scale effect dominates. What happens to the change in capital if the market wage decreases?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started