A Firm Will Employ More of an Input Whose Relative

Multiple Choice

A firm will employ more of an input whose relative price has fallen and, conversely, will use less of an input whose relative price has risen. Thus, a fall in the price of capital will increase the relative price of labor and thereby reduce the demand for labor. This describes the

A) output effect.
B) substitution effect.
C) idea of derived demand.
D) law of diminishing returns.