At a price of $5/hour,Karina wants to hire three workers.When the price rises to $7/hour,she wants to hire only two workers.Karina's price elasticity of demand for workers is
A) -0.83.
B)-1.20.
C) -0.33.
D) -0.40.
E) -0.10.

Question

Quizplus · Accepted Answer

Price elasticity of demand for labor is given by the formula

% change in quantity demanded of labor / % change in wages

% change in quantity demanded of labor = ((2-3)/2.5) * 100% = -40%

% change in wages = ((7-5)/6) * 100% = 33.33%

Therefore,

Price elasticity of demand for workers = (-40%/33.33%) = -1.20

Since the result is negative, the demand for workers is elastic, which means that a small increase in wages leads to a large decrease in the quantity of labor demanded.

At a Price of $5/hour,Karina Wants to Hire Three Workers