Question

Hilary is a retired teacher who lives in Miami and does some consulting work for extra cash. At a wage of $50 per hour, she is willing to work 10 hours per week. At $65 per hour, she is willing to work 19 hours per week.

Using the midpoint method, the elasticity of Hilary’s labor supply between the wages of $50 and $65 per hour is approximately ___ , which means that Hilary’s supply of labor over this wage range is ___ .

Answer 1

Hilary is a retired teacher who lives in Miami and does some consulting work for extra cash. At a wage of $50 per hour, she is willing to work 10 hours per week. At $65 per hour, she is willing to work 19 hours per week.

Using the midpoint method, the elasticity of Hilary’s labor supply between the wages of $50 and $65 per hour is approximately 2.37 , which means that Hilary’s supply of labor over this wage range is elastic.

Step-by-step explanation:

Midpoint elasticity = (Change in labor supplied / Average labor supplied) / (Change in wage rate / Average wage rate)

= [(19 - 10) / (19 + 10) / 2] / [$(65 - 50) / $(65 + 50) / 2]

= [9 / (29 / 2)] / [15 / (115 / 2)]

= (9 / 14.5) / (15 / 57.5)

= 0.62/0.26

Midpoint elasticity = 2.37

Once elasticity is greater than 1, supply of labor is Elastic.