At a wage of $25 per hour, the firm employs 50,000 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?

Question

Quizplus · Accepted Answer

The formula for elasticity of labor demand is:

%Δ quantity of labor demanded / %Δ wage

Using the information given in the problem, %Δ quantity of labor demanded = (45,000-50,000)/50,000 * 100% = -10%

%Δ wage = (27-25)/25 * 100% = 8%

Therefore, the elasticity of labor demand is:

-10% / 8% = -1.25

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