Question

Which of the following is true? A. An advanced market economy would tend to use both labor intensive and capital intensive production methods. B. An economy in which labor is relatively scarce would tend to use capital intensive production methods. C. An increase in the availability of labor relative to capital in an economy would tend to increase how labor intensive the production processes in that economy would be.

Answer 1

Answer:

B. An economy in which labor is relatively scarce would tend to use capital intensive production methods.

Explanation:

In modern economies, production is done by combining the two factors of production, capital and labor. Each company will seek to make the most economical and efficient combination of these factors in the production process. However, in situations of scarcity of one factor, companies will have to increase the intensity of the most abundant factor. Thus, for example, if in an economy the labor factor is scarce, business output will be more capital intensive, that is, it will use more machinery and less labor.