The price elasticity of the supply of teenage labour services is approximately 1.36.Suppose the government of Prince Edward Island raises the minimum wage rises from $10.00 per hour to $10.25.Using the midpoint formula, calculate the approximate change in the quantity supplied of teenage labour.

Question

Quizplus · Accepted Answer

Using the midpoint formula, the percent change in quantity supplied is:
[(Q2 - Q1) / ((Q1 + Q2) / 2)] x 100%
Assuming that the initial quantity supplied is Q1 and it increases by x% to become Q2, then we can rearrange the formula to solve for x:
x = [(Q2 - Q1) / ((Q1 + Q2) / 2)] x 100%
Given that the price elasticity of supply is 1.36, we know that:
x = 1.36 x (($10.25 - $10.00) / (($10.00 + $10.25) / 2)) x 100%
x = 1.36 x (0.25 / $10.125) x 100%
x ≈ 3.98%
Therefore, the approximate change in the quantity supplied of teenage labour is 3.98%, which is closest to option C (4 percent).

The Price Elasticity of the Supply of Teenage Labour Services