At a wage of $25 per hour, the firm employs 50,000 of hours of labor per week. If the wage would increase to $27 per hour, the firm would employ 45,000 hours of labor per week. What is the elasticity of labor demand?
A) −2.50
B) −1.50
C) −1.25
D) −0.50
E) −0.25

Question

Quizplus · Accepted Answer

The elasticity of labor demand is calculated using the formula: (percentage change in quantity demanded) / (percentage change in price). The percentage change in quantity demanded is ((45,000 - 50,000) / 50,000) = -0.10, and the percentage change in wage is ((27 - 25) / 25) = 0.08. Thus, elasticity = -0.10 / 0.08 = -1.25.

At a Wage of $25 Per Hour, the Firm Employs