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Question
An industry utilizes capital and two types of labor. Unskilled labor is a substitute for capital while the skilled labor is complementary to capital. An increase in the price of capital will
A) cause the demand for labor to increase, raising wages of both skilled and unskilled labor.
B) cause the wage of unskilled labor to rise relative to the price of skilled labor.
C) induce the firms in the industry to cut back on all levels-capital, unskilled and skilled labor.
D) cause the demand for skilled labor to rise and the demand for unskilled labor to fall.
Answer
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