Question

9. Calculating the price elasticity of supply Rajiv is a college student who lives in Chicago and does some consulting work for extra cash. At a wage of $40 per hour, he is willing to work 7 hours per week. At $50 per hour, he is willing to work 10 hours per week. Using the midpoint method, the elasticity of Rajiv's labor supply between the wages of $40 and $50 per hour is approximately , which means that Rajiv's supply of labor over this wage range is .

Answer 1

Answer:

PES = 1.59 elastic

Explanation:

Price elasticity of supply = percentage change in quantity supplied / percentage change in price

% change in quantity = (Q2 - Q1) / [(Q2 + Q1) / 2] = (10 - 7) / [(10 + 7) / 2] = 3 / 8.5 = 35.29%

% change in price = (50 - 40) / [(50 + 40) / 2] = 10 / 45 = 22.22%

PES = 35.29% / 22.22% = 1.59 elastic