Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases marginal returns as more workers contribute to production.
B
It decreases marginal returns due to diminishing returns on additional labor input.
C
It has no effect on marginal returns as labor supply does not influence productivity.
D
It results in a constant marginal return regardless of labor supply changes.
Understanding the Answer
Let's break down why this is correct
Answer
When the labor supply increases due to the substitution effect, it means more people are willing to work, often because they are attracted to the job market as wages rise or other jobs become less appealing. This increase in workers can lead to diminishing marginal returns to labor, which means that each additional worker contributes less to overall production than the previous one. For example, if a factory hires many workers but has only one machine, the extra workers might not be able to produce much more because they are limited by the machine’s capacity. As a result, while the total output may rise, the efficiency of each worker decreases, making it harder for the economy to achieve optimal productivity. Overall, this situation challenges economic efficiency, as resources may not be used in the most productive way possible.
Detailed Explanation
When more workers join, each additional worker helps less than the one before. Other options are incorrect because Some might think more workers always mean more production; It's a common mistake to think that adding workers doesn't change productivity.
Key Concepts
Economic efficiency
Substitution effect
Labor force participation rate
Topic
Marginal Returns and Labor Supply
Difficulty
hard level question
Cognitive Level
understand
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