If the own-wage elasticity of demand for professors is -0.5,then an increase in the wage of professors from $45,000 to $55,000 will cause the quantity demanded to fall by
A) 2%.
B) 5%.
C) 10%.
D) 20%.

Question

Quizplus · Accepted Answer

The own-wage elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in its own price. In this case, the own-wage elasticity of demand for professors is -0.5, which means that a 1% increase in the wage of professors will lead to a 0.5% decrease in the quantity demanded of professors.

To calculate the percentage change in quantity demanded, we can use the following formula:

% change in quantity demanded = own-wage elasticity of demand x % change in wage

Here, the % change in wage is:

% change in wage = (new wage - old wage) / old wage x 100%

% change in wage = ($55,000 - $45,000) / $45,000 x 100%

% change in wage = 22.2%

Substituting the values in the formula, we get:

% change in quantity demanded = -0.5 x 22.2% = -11.1%

Therefore, an increase in the wage of professors from $45,000 to $55,000 will cause the quantity demanded to fall by 10%.

If the Own-Wage Elasticity of Demand for Professors Is -0