The wage rate increases 8 percent, and the quantity demanded of labor falls by 14 percent. The absolute value of the elasticity of demand for labor is

Question

Quizplus · Accepted Answer

The formula for the elasticity of demand is:

Elasticity of Demand = Percent Change in Quantity Demanded / Percent Change in Price

We are given that the wage rate (which is the price of labor) increases by 8%, and as a result, the quantity demanded of labor falls by 14%. Therefore:

Percent Change in Quantity Demanded = -14%
Percent Change in Price = 8%

Plugging these values into the formula for elasticity, we get:

Elasticity of Demand = (-14% / 8%) = -1.75

Since we are asked to find the absolute value of the elasticity of demand, we take the absolute value of -1.75, which is 1.75.

Therefore, the answer is B, 1.75.

The Wage Rate Increases 8 Percent, and the Quantity Demanded