When the wage is $10 per hour, demand for workers is 30 hours per week on average. The wage then...

Question:

When the wage is $10 per hour, demand for workers is 30 hours per week on average. The wage then increased to $12 per hour, and the demand for workers decreased to 27 hours of work per week on average. What is the elasticity of labor coefficient for this group?

The Elasticity of Demand for Labor:

The elasticity of demand for labor measures the responsiveness of quantity demanded for workers to a wage change in terms of percentage. If the absolute value of the elasticity of demand is greater than 1, the demand is elastic. If the absolute value of the price elasticity of demand is smaller than 1, the demand is inelastic.

Answer and Explanation: 1

Let w denote the wage and Q denote the demand for labor. The elasticity of labor coefficient can be calculated as:

{eq}\hspace{1cm} E = (\frac{Q_1-Q_0}{w_1-w0})(\frac{Q_0}{w_0}) = (\frac{27-30}{12-10})(\frac{10}{30}) = -0.5 {/eq}

Thus, the elasticity of labor coefficient for this group is -0.5.


Learn more about this topic:

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Price Elasticity of Demand in Microeconomics

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Chapter 2 / Lesson 11
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In microeconomics, the principle of price elasticity of demand is important to understand. Learn the definition of price elasticity of demand, understand the formula and its categories, and see some calculation examples.


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