Question 1 If the wage elasticity of demand for professors is -0.5, then an incr

Question

Question 1

If the wage elasticity of demand for professors is -0.5, then an increase in the wage of professors from $45,000 to $55,000 will cause the quantity demanded to fall by how many percentage?

Question 2

If the quantity of auto workers demanded decreases from 66000 to 54000 when the equilibrium wage increases from $12 per hour to $14 per hour, then the wage elasticity of demand for these workers is elastic or inelastic?

Question 3

if the absolute elasticity of labor demand is 2.0, then an eight percent increase in the wage will decrease employment by how many percentage?

Explanation / Answer

wage elasticity of demand for professors is -0.5

increase in the wage = $55000-$45000 = $10000

elasticity = percentage change in quantity demanded/percentage change in income

-0.5*10000/{(45000+55000)/2} = percentage change in quantity

percentage change in quantity = 0.1 = 10%

wage elasticity = percentage change in quantity demanded/percentage change in income

= -8000/{(54000+66000)/2}/{2/(12+14)/2} = -13/15 = -0.87

as wage elasticity < 1, it is relatively inelastic

absolute elasticity of labor demand is 2.0

increase in the wage = 8%

elasticity = percentage change in quantity demanded/percentage change in income

decrease in employment = 8%*2 = 16%

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