Question

Paolo is a stay-at-home parent who lives in Philadelphia and provides math tutoring for extra cash. At a wage of $25 per hour, he is willing to tutor 6 hours per week. At $35 per hour, he is willing to tutor 16 hours per week.Using the midpoint method, the elasticity of Paolo's labor supply between the wages of $25 and $35 per hour is approximately_____, which means that Paolo's supply of labor over this wage range is___?

Answer 1

Using the midpoint method, the elasticity of Paolo's labor supply between the wages of $25 and $35 per hour is approximately 2.73, which means that Paolo's supply of labor over this wage range is ELASTIC?

Step-by-step explanation:

The formula for calculating price elasticity of supply using the midpoint method = {(Q2 - Q1) / [(Q2 + Q1) / 2]} / {(P2 - P1) / [(P2 + P1) / 2]}

{(16 - 6) / [(16 + 6) / 2]} / {(35 - 25) / [(35 + 25) / 2]} = (10 / 11) / (10 /30) = 2.73

• when the price elasticity of supply > 1, then it is elastic
• when the price elasticity of supply < 1, then it is inelastic
• when the price elasticity of supply = 1, then it is unitary

The price elasticity of supply measures the proportional change between the price of a product and the quantity supplied. If a 1% change in the price of product changes the quantity supplied in more than 1%, the supply is considered elastic. If a 1% change in the price of a product changes the quantity supplied in less than 1%, the supply is inelastic.

Answer 2

The answer is 2.73 and supply is elastic.

Step-by-step explanation:

% change in QS = [ (Q2-Q1) / ((Q2+ Q1)/2))] * 100

% change in QS = [ (16-6 / ((16+ 6/2))] * 100 = 90.90%

% change in income = [ (Y2-Y1) / ((Y2+ Y1)/2))]

% change in income = [ (35-25) / ((35+ 25)/2))]= 33.33%

YES = % change in QS/ % change in income

YES = 90.90% / 33.33%= 2.73

If elasticity > 1, then demand responds more than proportionately to a change in price i.e. demand is elastic.