The price elasticity of the supply of teenage labour services is approximately 1.36.Suppose the minimum wage rises from $7.25 per hour to $8.75.Using the midpoint formula, calculate the approximate change in the quantity supplied of teenage labour.
A)7)3 per cent
B)14.4 per cent
C)25.5 per cent
D)There is insufficient information to answer the question.

Question

Quizplus · Accepted Answer

Using the midpoint formula, the percentage change in the minimum wage is:

[(8.75 - 7.25)/((8.75 + 7.25)/2)] x 100% = 20.69%

The elasticity of supply is 1.36, so the percentage change in the quantity supplied will be approximately:

1.36 x 20.69% = 28.13%

Therefore, the approximate change in the quantity supplied of teenage labour is 25.5%, which is closest to option C (25.5%).

The Price Elasticity of the Supply of Teenage Labour Services