• Which would you expect to be more ‘own-wage’ elastic: the demand for surgeons, or the...

• Which would you expect to be more ‘own-wage’ elastic: the demand for surgeons, or the demand for restaurant workers? Explain, using Hicks – Marshall Laws of Derived Demand.

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Expert Solution

According to the Hicks – Marshall Laws of Derived Demand, the own wage elasticity of demand for labor depends upon many factors and is high in case the good produced by it, has elastic demand, the degree of substitutability of other factors with this factor is very high, the supply of other factors is elastic and the labor has a higher proportion in total cost of production.

Comparing demand for surgeons or for restaurant workers, we see that the wage bill incurred on restaurant workers formulates a smaller percentage of total cost of restaurant while surgeons charge a relatively hefty amount and proposes a large share. Surgeons cannot be easily replaced by other surgeon because the pool of surgeons is quite smaller than the pool of restaurant workers. Dining, lunch and breakfast at a restaurant has an elastic demand while surgeries have highly inelastic demand. Given these facts the own wage elasticity of restaurant workers should be relatively highly.

Rahul Sunny answered 1 year ago

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