Question

Janet is a retired teacher who lives in Detroit and teaches tennis lessons for extra cash. At a wage of $50 per hour, she is willing to teach 7 hours per week. At $65 per hour, she is willing to teach 10 hours per week. Using the midpoint method, the elasticity of Janet’s labor supply between the wages of $50 and $65 per hour is approximately , which means that Janet’s supply of labor over this wage range is .

Answer 1

Answer:

The elasticity of Janet's labour between $50 and $65 is about 1.35 and the implication is that Janet's supply of labour over the wage range is elastic

Explanation:

The midpoint formula for calculating elasticity looks at the change in quantity demanded divided by the change in the price

Specifically for this question we use the following formula

(Q2-Q1) /  (P2-P1)  x  (P2+P1) / (Q2 + Q1)

Where Q2 is the new Quantity and Q1 is the old quantity, P2 is the new price and P1 is the old price.

Using the formula

Q2= 10 hours per week             P2 = $65

Q1= 7 hours per week                P1 = $50

We calculate the elasticity using the midpoint method as follows

(10-7) / (65-50) x (65+50) / (10+7)

= (3/ 15) x (115/ 17)

=0.2 x 6.765

= 1.35

The elasticity of Janet's labour between $50 and $65 is about 1.35 and the implication is that Janet's supply of labour over the wage range is elastic