Question

11. Calculating the price elasticity of supply Juanita is a college student who lives in Denver 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 Juanita’s labor supply between the wages of $50 and $65 per hour is approximately , which means that Juanita’s supply of labor over this wage range is .

Answer 1

a. 1.35

b. Elastic

Step-by-step explanation:

The formula for calculating the elasticity of supply using the midpoint method is as follows:

Elasticity of Supply = {(Q2 - Q1) ÷ [(Q2 + Q1) ÷ 2]} ÷ {(P2 - P1) ÷ [(P2 + P1) ÷ 2]}

Where,

Q1 = Hours spent at wage wage $50 = 7 hours

Q2 = Hours spent at wage wage $65 = 10 hours

P1 = Old wage = $50

P2 = New wage = $65

Substituting into the elasticity formula, we have:

Elasticity of Supply = {(10 - 7) ÷ [(10 + 7) ÷ 2]} ÷ {(65 - 50) ÷ [(65 + 50) ÷ 2]}

= {3 ÷ [17 ÷ 2]} ÷ {15 ÷ [115 ÷ 2]}

= 0.352941176470588 ÷ 0.260869565217391

Elasticity of Supply = 1.35294117647059 approximately 1.35

Therefore, the elasticity of Juanita’s labor supply between the wages of $50 and $65 per hour is approximately 1.35, which means that Juanita’s supply of labor over this wage range is elastic because the value of the elasticity of supply is greater than 1.