Question

11. Calculating the price elasticity of supply Felix is a stay-at-home parent who lives in Houston and does some consulting work for extra cash. At a wage of $25 per hour, he is willing to work 4 hours per week. At $40 per hour, he is willing to work 10 hours per week. Using the midpoint method, the elasticity of Felix's labor supply between the wages of $25 and $40 per hour is approximately , which means that Felix's supply of labor over this wage range is

Answer 1

Answer:

The elasticity of Felix's labor supply between the wages of $25 and $40 per hour is approximately 1.08.

Since 1.08 is greater 1, this means that Felix's supply of labor over this wage range is elastic.

Explanation:

From the question, we have:

New number of hours willing to work = 10

Old number of hours willing to work = 4

New wage = $40

Old wage = $25

Generally, the formula for calculating the price elasticity of labor supply is as follows:

Price elasticity of labor supply = Percentage change in hours willing to work / Percentage change in wage ................ (1)

Where, based on the midpoint formula, we have:

Percentage change in hours willing to work = {(New number of hours willing to work - Old number of hours willing to work) / [(New number of hours willing to work + Old number of hours willing to work) /

2]} * 100 = {(10 - 4) / [(10 + 14) / 2]} * 100 = 50%

Percentage change in wage = {(New wage - Old wage) / [(New wage + Old wage) / 2]} * 100 = {(40 - 25) / [(40 + 25) / 2]} * 100 = 46.1538461538462%

Substituting the values into equation (1), we have:

Price elasticity of labor supply = 50% / 46.1538461538462% = 1.08333333333333

Approximated to 2 decimal places, we have:

Price elasticity of demand = 1.08

The elasticity of Felix's labor supply between the wages of $25 and $40 per hour is approximately 1.08.

Since 1.08 is greater 1, this means that Felix's supply of labor over this wage range is elastic.