00:01
So here we're talking about elasticity, and in particular, the elasticity of labor demand.
00:07
Now, by definition, this is thinking about how the quantity of labor changes with response to the wage, right? so if the wage goes up, how many fewer workers, right? that's what this elasticity is measuring.
00:25
How easily can you stop using labor? so for a, obviously, the elasticity rises, right? because you can more easily replace labor with machines, right? the machines can now replace the labor, so when the wage goes up, you can make the switch.
00:50
For b, we are thinking about, again, the elasticity rises, right? because now imagine the wage goes up, you have the price of output, therefore goes up, right? so now you get more people buying other stuff, right? people will substitute away from your product when it becomes expensive.
01:22
So when the wage rises, which increases your costs, increasing the price of your product, people go to the other product, right? so this means you fire more workers, right? because the demand has fallen...