AuthorTopic: An econ question
Enfotasat
@2015-02-09 21:00:30
Ok, this is a easy Econ questions, but for some reason the answer doesnít make sense to me.

The demand for labor will be less elastic:

A. at lower wage rates than at higher wage rates
B. in the long run than in the short run.
C. the less labor intensive the production process.

The answer is C, but shouldn't it the "more" intensive the production process is? Am I over thinking this??
phunky
@2015-03-19 14:43:29
Think of it this way, when the production process is highly labour intensive, the demand will be more elastic. The reason for this is that when the production process requires a lot of labour, it will be a huge cost to the factory whereas if there was only one guy working there, then they wonít really care if his income goes up because overall, itís such a minor cost in the entire operation.

If pencils are now $2 as opposed to $1, youíll still buy pencils because you donít buy pencils all the time and itís a small percentage of your income. However, when rent doubles, you have look elsewhere which means you have higher elasticity for your rent than you do for pencils.

Hope this helps!

CFA Discussion Topic: An econ question

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