In which situation is it likely that the demand for labour would be inelastic?

A. Labour and capital are close substitutes
B. Labour costs are only a small proportion of total costs
C. Demand for the final product that the labour produces is elastic
D. A large quantity of unemployed labour is available in the economy

Correct Answer:

Option B – Labour costs are only a small proportion of total costs

Explanation

When specialised labour or capital is needed, then the demand for labour will be more inelastic with respect to the wage rate.