2) Union A faces a demand curve in which a wage of $4 per hour leads to demand f

Question

2) Union A faces a demand curve in which a wage of $4 per hour leads to demand for 20,000 person hours, and a wage of $5 per hour leads to demand for 10,000 person-hours. Union Bfaces a demand curve in which a wage of $6 per hour leads to demand for 30,000 person-hours, whereas a wage of $5 per hour leads to demand for 33,000 person-hours a) Which union faces the more elastic demand curve? b) Which union will be likely to push for the wage increase? Why? Consider total income (wages times person-hours).

Explanation / Answer

PE = (Q2 - Q1)/(W2 - W1) x (W2 + W1)/(Q2 + Q1)

Union A:

PE = -10000/1 x 9/30000 = -3 (elastic)

Union B:

PE = -3000/1 x 11/63000 = - 0.524 (inelastic)

a) Union A faces the more elastic demand curve

b) Union B would be more likely to push for the wage increase as demand would reduce less than proportionally to the wage increase and total wages would increase.

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