Question

Suppose that an employee at a coffee shop is willing to work 30 hours per week when she is paid $11.00 per hour. When she is offered a raise to $15.00 per hour, she is willing to work 40 hours per week. Her price elasticity of supply is . (Note: use the midpoint method and give your answer to two decimal places.)

Answer 1

The price elasticity of supply is the effect of a change in quantity supplied due to a change in price. The price elasticity of supply is 0.92.

What is the price elasticity of supply?

The price elasticity of supply shows the direct relationship between the price and supplied quantity. As the price will increase in the same flow the supply of quantity will also increase.

The computation of price elasticity of supply:

Given,

• Current working hours =30 hours per week
• Raised working hours =40 hours per week
• Current payment =$11 per hour
• Raised payment =$15 per hour

$\begin{aligned}\text{Price Elasticity of Supply}&=\dfrac{\% \text{Change in Working Hours}}{\%\text{Change in Wages}}\\&=\dfrac{0.286}{0.308}\\&=0.92\end{aligned}$

Working Note:

$\begin{aligned}\text{\% Change in Working Hours}&=\dfrac{\text{Raised working hours-Current working hours}}{\text{Average of Total working hours}}\\&=\dfrac{40-30}{\frac{40+30}{2}}\\&=0.286\end{aligned}$

$\begin{aligned}\text{\% Change in Wages}&=\dfrac{\text{Raised payment-Current payment}}{\text{Average of Total payment}}\\&=\dfrac{\ 15-\ 11}{\frac{\ 15+\ 11}{2}}\\&=0.308\end{aligned}$

Therefore, the price elasticity of supply is 0.92.

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