If an increase in the hourly wage rate from $5 to $6 causes a worker to increase labor hours from 6 to 8, then the supply elasticity for that worker is equal to about:
a.0.8
b.1.57
c.0.933
d.2.0
Answer:
b
Elasticity of labor supply is the ratio of precentage change in the quanity of labpr supplied to the percentage change in the price of labor. In this example the quantity of labor supplied changes by 100(8-6)6=33.33% and the price of labor changes by 100(6-5)/5=20%. So the elasticiy of labor supply is about 33.33/20=1.67, which is closest to (b).
d.2.0
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