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If the absolute elasticity of labor demand is 2.0, then an eight percent increase in the wage...

Question:

If the absolute elasticity of labor demand is {eq}\displaystyle 2.0 {/eq}, then an eight percent increase in the wage will decrease employment by how many percentage?

Elasticity Coefficient:

In the parlance of economics, the concept of elasticity is used to denote the sensitivity of one variable such as quantity demanded, quantity supplied, or labor demand to variables such as a change in price or change in wages. On the basis of the magnitude of elasticity, one may categorize the demand or supply as elastic, inelastic, or unitary elastic.

Answer and Explanation: 1

The calculated value of the decrease in employment percentage is 16%.

The percentage decrease in employment is given by:

{eq}\begin{align*} &= \text{Percentage increase in the wage * elasticity of labor demand} \\[0.3 cm] &= 8\% * 2 \\[0.3 cm] &= 16\% \end{align*} {/eq}


Learn more about this topic:

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What is Elasticity in Economics? - Definition, Theory & Formula

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Chapter 4 / Lesson 8
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Learn the definition of elasticity in economics. Understand the elasticity formula, the ways used to measure elasticity, and who created the theory of elasticity.


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