11. Calculating the price elasticity of supply Caroline is a college student who

Question

11. Calculating the price elasticity of supply

Caroline is a college student who lives in Detroit and does some consulting work for extra cash. At a wage of $25 per hour, she is willing to work 4 hours per week. At $40 per hour, she is willing to work 10 hours per week.

Using the midpoint method, the elasticity of Caroline's labor supply between the wages of $25 and $40 per hour is approximately (0.08,0.54,1.86,17.5) , which means that Caroline's supply of labor over this wage range is (elastic,inelastic) .

Explanation / Answer

Given the information,

% change in wages = (40-25)/25 = 60%

% increase in labor supply = (10-4)/4 = 150%

Price elasticity of supply = % change in Qs / % change in P = 150%/60% = 2.5

Since the elasticity is more than 1, it is elastic in nature.

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