Question

11. Calculating the price elasticity of supply 

Kyoko is a retired teacher who lives in Denver and provides math tutoring for extra cash. At a wage of $30 per hour, she is willing to tutor 3 hours per week. At $50 per hour, she is willing to tutor 7 hours per week .

Using the midpoint method, the elasticity of Kyoko's labor supply between the wages of $30 and $50 per hour is approximately _______  , which means that Kyoko's supply of labor over this wage range is _______ .

Answer 1

Elasticity of labor supply (E) = (Change in hours worked / Average hours worked) / (Change in wage rate / Average wage rate)

= [(7 - 3) / (7 + 3)] / [$(50 - 30) / $(50 + 30)]

= (4 / 10) / (20 / 80)

= 1.60

Since value of E is higher than 1, supp,y of labor is elastic.