1) Consider the wage elasticity of demand for waiters and waitresses. For the fo
ID: 1136562 • Letter: 1
Question
1) Consider the wage elasticity of demand for waiters and waitresses. For the following, discuss whether that will make the elasticity more or less inelastic. Explain which of the four effects is relevant, and whether it is through the scale or substitution effect. Technology is developed so people can order and pay at the table by machine. The firmsthat produce the technology mentioned above can easily increase or decrease production to respond to demand Customers at high end restaurants will find or dering by machine to be tacky. These restaurants will not buy the technology. Eating out is a luxury, people can easily eat at home or bring a bag lunch. Labor costs are a high percentage of a restaurant's total costs. a. b. c. d. e.Explanation / Answer
Answer
The question doesn't mention the "four effects''. I have answered the less inelastic or more inelastic part.
a) It will make elasticity of demand less inelastic because the increase in wage rate will decrease the quantity of labour demanded more proportionally than the increase in the wage rate. The labour demand will be highly sensitive.
b) It will make elasticity of demand less inelastic because the production can be easily managed so a unit increase in wage rate will bring about drastic fall in quantity demanded.
c) It will make elasticity of demand more inelastic because not buying the technology will mean increase in wage rate will not have high impact on quantity of labour demanded. There is substitiution effect
d) It will make elasticity of demand less inelastic. Since product consumed at hotels is decreased there is scale effect. Increase in wage will more than proportionally decrease the quanty of labour demanded.
e)It will make elasticity of demand less inelastic. There is a scale effect because higher wage will result in higher average or marginal costs of production
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