Multiple Choice
Which of the following correctly explains the effect of an increase in the marginal product of labor on the labor demand curve in a perfectly competitive market?
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15. Markets for the Factors of Production
Demand for Labor in Perfect Competition
Multiple Choice
When economists say that the demand for labor is a derived demand, they mean that it is:
A
independent of the level of output produced by firms
B
based solely on the wage rate in the labor market
C
determined by the demand for the goods and services that labor helps produce
D
set by government regulations and minimum wage laws
Verified step by step guidance1
Understand the concept of derived demand: In microeconomics, derived demand refers to the demand for a factor of production (like labor) that depends on the demand for the final goods and services that the factor helps produce.
Recognize that labor demand is not independent of output: The demand for labor is linked to how much output firms want to produce because labor is an input in the production process.
Note that labor demand is not based solely on the wage rate: While wages affect labor demand, the primary driver is the demand for the products labor helps create, which influences how much labor firms need.
Understand that government regulations and minimum wage laws can affect labor supply and wages but do not directly determine the fundamental demand for labor.
Conclude that the correct interpretation of derived demand for labor is that it is determined by the demand for the goods and services that labor helps produce.
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