Labor demand is given as Ld= 4000-120w. Find the own-wage elasticity of demand when the market wage w*= 20. Is it elastic or inelastic?

Labor demand is given as Ld= 4000-120w. Find the own-wage elasticity of demand when the market wage w*= 20. Is it elastic or inelastic?
Answer:

Labor demand is given as

Ld= 4000-120w

let us find the partial derivatie of above equation w.r.t. w

∆Ld / ∆w = -120

elasticity of demand: = ∆Ld / ∆w *(W/Ld)

elasticity of demand: = -120 [W / (4000 – 120 W)]

keeping w=20 in above equation

elasticity of demand: = = -120 [ 20/( 4000 – 2400)]

elasticity of demand: = -120 * 20/1600

elasticity of demand: =-1.5

As the elasticity of demand is less than 1 thus it is inelastic.

Asked on February 14, 2018 in economics.
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