   Chapter 13, Problem 14QP

Chapter
Section
Textbook Problem

Explain the relationship between each of the following pairs of concepts: a. The elasticity of demand for a product and the elasticity of demand for the labor that produces the product b. The ratio of labor cost to total cost and the elasticity of demand for labor c. The number of substitutes for labor and the elasticity of demand for labor

(a)

To determine

Relationship between elasticity of demand for the product and elasticity of demand for labor that produces the product.

Explanation

Elasticity of demand refers to the responsiveness of changes or the change in quantity demanded due to the change in price. The demand for the product that the labor produces refers to the responsiveness of percentage change in quantity demanded due to change in price, thereby changing the quantity of labor demanded.

When the labor elasticity of demand to produce is elastic, an increase in the percentage of price leads to decrease the quantity demanded for the product, thereby decreasing the quantity demand of labor and vice versa...

(b)

To determine

Relationship between the ratio of labor cost to total cost and the elasticity of demand for labor.

(c)

To determine

Relationship between the number of substitutes for labor and the elasticity of demand for labor.

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