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Assume the Price of Capital Falls Relative to the Price

Question 226

Multiple Choice

Assume the price of capital falls relative to the price of labor and, as a result, the demand for labor increases. Therefore,


A) capital is very highly substitutable for labor.
B) the output effect is greater than the substitution effect.
C) the income effect is greater than the output effect.
D) the substitution effect is greater than the output effect.

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