Question

By how much would the quantity of labor demanded decrease if a minimum wage hike raised prevailing wages from $8 to $10 an hour and if the elasticity of labor demand were 0.40?

Answer 1

Answer:

it would decrease by 10%

Step-by-step explanation:

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

Price elasticity of demand = percentage change in quantity demanded / percentage change in price  

percentage change in price = ($10 - $8) / $8 = 0.25 x 100 = 25%

0.4 =  percentage change in quantity demanded / 25%

percentage change in quantity demanded = 25% x 0.4 = 10%