Question

Frances is a retired teacher who lives in Denver 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 Jake’s labor supply between the wages of $50 and $65 per hour is approximately _______ , which means that Jake’s supply of labor over this wage range is ______ .

Answer 1

Midpoint elasticity = 2.38

Supply of labor is Elastic

Step-by-step explanation:

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

When Change in labor supplied= 19-10=9

Average labor supplied=(19+10)/2 =14.5

Change in wage rate=65-50=15

Average wage rate =(65 + 50)/2=57.5

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

= 0.62/0.26

= 2,3846

= 2.38

Since elasticity is higher than 1, supply of labor is Elastic.