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Suppose wages in the ball bearing industry rise by 4%, and in response, ball bearing manufacturers lay off 6% of the workers. What is the elasticity of demand for labor in this industry?

A. 0.04
B. 0.06
C. 0.66
D. 1.5

Sagot :

GinnyAnswer
To determine the elasticity of demand for labor in the ball bearing industry, we need to use the formula for elasticity of demand. The elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good.

The formula for the elasticity of demand for labor is:
[tex]\[ E_d = \frac{\text{Percentage Change in Quantity Demanded of Labor}}{\text{Percentage Change in Wage Rate}} \][/tex]

In this scenario:
- The percentage change in the wage rate is an increase of 4%.
- The percentage change in the quantity of labor demanded (layoffs) is a decrease of 6%.

These percentages need to be expressed in decimal form for the calculation:

- Percentage change in wage rate: 4% = 0.04
- Percentage change in quantity demanded of labor: 6% = 0.06

Now, we substitute these values into the formula:

[tex]\[ E_d = \frac{0.06}{0.04} \][/tex]

When we divide 0.06 by 0.04, we get:

[tex]\[ E_d = 1.5 \][/tex]

So, the elasticity of demand for labor in this industry is 1.5.

Therefore, the correct answer is 1.5.
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