The price elasticity of the supply of teenage labor services is approximately 1.36. Suppose the minimum wage rises from $7.25 per hour to $8.75. Using the midpoint formula, calculate the approximately change in the quantity supplied of teenage labor.
A) 7.3 percent
B) 14.4 percent
C) 25.5 percent
D) There is insufficient information to answer the question.

Question

Quizplus · Accepted Answer

Using the midpoint formula, the percentage change in price is (8.75-7.25)/((8.75+7.25)/2) = 0.2857 or 28.57%. The price elasticity of supply is 1.36, so the percentage change in quantity supplied is approximately 1.36 times the percentage change in price, or 1.36*28.57% = 38.86%. Therefore, the approximate change in the quantity supplied of teenage labor is 38.86%, or 25.5% rounded to one decimal place.

The Price Elasticity of the Supply of Teenage Labor Services