Suppose the price of the product that labor is producing increases and simultaneously the price of capital, which is substitutable for labor, decreases. Assuming that the substitution effect is greater than the output effect, the demand for labor

A) will increase.
B) will decrease.
C) may either increase or decrease.
D) will not change.

Substitution Effect

The change in the consumption pattern of goods due to a change in relative prices, holding the level of utility constant.

Output Effect

The change in total output resulting from a change in input quantities or the introduction of new processes or technologies in the production.

Price of Capital

The cost of using capital goods, such as equipment or buildings, which is often reflected in interest rates or rental charges.