Question

Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as they desire. If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor. What does this indicate about the supply curve for janitorial services?

Answer 1

Answer:

The supply curve is perfectly elastic

Explanation:

This means that the janitors' labor supply curve is perfectly elastic. Elasticity is a measure of the sensitivity of labor supply to price of wage. When small changes in wage prices are accompanied by a considerable reduction in labor supply, we say that labor supply is elastic. In contrast, when wage price changes do not significantly change labor supply, we say that labor supply is inelastic. When a slight change in the price of wage affects the labor supply entirely, we say that the labor supply is perfectly elastic. As a result, a reduction from $ 20 to $ 19 decreases all janitor's work supply.