Question

The price elasticity of the supply of teenage labor services is approximately 1.36. Suppose the minimum wage rises from $7.25 per hour to $8.75. Using the midpoint formula, what is the approximate change in the quantity of teenage labor supplied

Answer 1

Answer:

0.085

Explanation:

The computation of the expected change in the quantity of teenage is shown below:

As we know that

Price elasticity of supply = Percentage change in quantity supplied ÷ Percentage change in price

where,

Percentage change in price is

= (p1 + p2) ÷ 2 ÷ (p2 - p1)

= ($7.25 + $8.75) ÷ 2 ÷ ($8.75 - $7.25)

= 8 ÷ 0.5

= 16

Now the change in the quantity of supplied is

= 1.36 ÷ 16

= 0.085