Question

Calculating the price elasticity of supplyJake is a retired teacher who lives in New York City and does some consulting work for extra cash. At a wage of $50 per hour, he is willing to work 7 hours per week. At $65 per hour, he is willing to work 10 hours per week. Using the midpoint method, the elasticity of Jakeâs labor supply between the wages of $50 and $65 per hour is approximately ___ , which means that Jakeâs supply of labor over this wage range is ___ .

Answer 1

Answer:

1.38; Elastic

Explanation:

Calculation to determine the Elasticity of labor supply (E)

Using this formula

Elasticity of labor supply (E) = (Change in hours worked / Average hours worked) / (Change in wage rate / Average wage rate)

Let plug in the formula

Elasticity of labor supply (E) = [(10 - 7) / (10 + 7)] / [$(65 - 50) / $(65 + 50)]

Elasticity of labor supply (E) = (3/ 17) / (15 / 117)

Elasticity of labor supply (E) =0.1765/0.1282

Elasticity of labor supply (E)=1.38

Therefore elasticity of Jakeâs labor supply between the wages of $50 and $65 per hour is approximately 1.38 which means that Jakeâs supply of labor over this wage range is ELASTIC