Question

Explain what happens to the elasticity of demand for labor in a given industry after each of the following events,

a. A new manufacturing technique makes capital easier to substitute for labor.

b. There is an increase in the number of substitutes for the final product that labor produces.

c. After a drop in the prices of capital inputs, labor accounts for a larger portion of a firm's factor costs.

Short answer

a. Increase in the Elasticity of demand for labour

b. Increase in the Elasticity of demand for labour

c. Increase in the Elasticity of demand for labour

Step-by-step solution

Introduction

The elasticity of demand, or demand elasticity, alludes to how delicate demand for a decent is contrasted with changes in other financial variables, like price or pay. It is regularly alluded to as price elasticity of demand on the grounds that the price of a decent or administration is the most well-known monetary element used to quantify it.

Explanation Part (a)

The elasticity of demand for work increments after the presentation of new innovation makes subbing capital for work simple. At the point when capital can be effortlessly filled in for work, a little ascent in the pay rate will prompt a significant decrease in the demand for work. At the point when work becomes costly, firms will favour involving more capital than work in the creation cycle.

Explanation Part (b)

The elasticity of demand for work increments when there is an expansion in the number of substitutes of merchandise created by the work. On the off chance that the last great created by the work can be effortlessly subbed with different items, then, at that point, even a little ascent in its price brought about by an ascent in the wage rate will prompt a fall in its demand. Because of this demand for work will likewise decline.

Explanation Part (c)

At the point when the price of capital sources of info falls while the price of work input stays unaltered, the firm will substitute capital for work. Because of this, there will be a decrease in the demand for work. In this present circumstance, even a little ascent in the compensation rate will prompt an enormous decrease in the demand for work. Accordingly, the elasticity of demand for work will increment.