Question

Charles is a stay-at-home parent who lives in New York City and teaches tennis lessons for extra cash. At a wage of $25 per hour, he is willing to teach 6 hours per week. At $35 per hour, he is willing to teach 16 hours per week. Using the midpoint method, the elasticity of Teresa’s labor supply between the wages of $25 and $35 per hour is approximately _________ , which means that Teresa’s supply of labor over this wage range is _________

Answer 1

Answer:

2.75, elastic.

Explanation:

Measure labor supply elasticity of Individual T's as follows :

              $\bf Elasticity=\frac{Percent \;change\;in\;labour\;hr}{\frac{Average\;labour\;hour}{\frac{Percent\;change\;in\;wage\;price}{Average\;wage\;price} } }$

                                $\bf =\frac{16-6}{\frac{16+6}{\frac{2}{\frac{35-25}{\frac{35+25}{2} } } } }$

                                $\bf=\frac{10}{\frac{11}{\frac{10}{30} } }$

                                $\bf=\frac{0.91}{0.33}$

                                $=2.75$

Therefore, the elasticity of the labour supply of Individual T's is approx. of earnings per hour. 2.75, meaning that the work supply of Person T's is elastic across this wage range