Question

16. Suppose labor demand is given by the equation

L = 50 −2W,

where L is the number of workers and W is the wage rate.

16a. The slope of the demand curve can be viewed as the amount by which L changes for every 1 unit change in W. This can be expressed formally as C SlopeAL ДW. where A refers to a small change in the value of L or W. Using this definition, find the slope associated with a wage change from $5 to $6. Would your answer be different ifthe wage rose from $20 to $21? 16b. Calculate the own-wage elasticity of labor demand as the wage changes from $5 to $6. How would your answer be different if the wage rose from $20 to $21? 16c. How does the slope change change as one moves up this labor demand curve? Graph this labor demand curve as one moves up this labor demand curve? How does the elasticity 16d. The firm's total expenditures on labor (the total income received by labor) equals the wage multiplied by the number of workers employed. Calculate the change in the firm's total expenditures on labor when the wage changes from $5 to $6. Do the same for a change from $20 to $21 16e. Considering your answer to 16b and 16d, what relationship can you find between the own-wage elasticity of labor demand and the change in a firm's total expenditures on labor (the total income received by labor)? 16f. Suppose each worker at this firm always works 40 hours a week. If L were expressed in terms of labor hours instead of the number of workers, the labor demand curve would be represented by the equation L-2000 80W Find the slope of the curve and the elasticity as the wage rises from $5 to $6. Does the change in the units in which L is measured make any difference to your answers (when compared to the answers in 16a and 16b)? 16g. Why do you think the economists prefer the elasticity when compared to the slope labor's responsiveness to wage changes? as a measure of

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