Question

The following table represents a demand schedule for farm workers.

Wage/hr	Number of workers/acre hired
$10	2
8	4
6	6
4	8
2	10

a. (10 points) On a fully-labeled graph, draw the demand curve for labor. Explain what the graph shows as if you were presenting it to a farm owner.

b. (10 points) Suppose the current wage rate for farm workers is $4/hr. Calculate the elasticity of demand using the table above and the point-slope formula. Explain what this value of elasticity means as if you were presenting it to a farm owner.

Answer 1

a.

The following graph shows demand curve for labour

The above diagram shows that demand curve for labour is downward sloping .This ,means there is inverse relation between wages and demand for labour. At lower wage rates,demand for labour is high while labour demand decreases as wages increases.

b. Suppose current wage rate is $4/hr and demnd formlabour is 8 workers /acre while wagre rate increases to $6/hr and demand for labour decreases to   workers/acre

elasticity of demand using point slope method=%change in quantity /%change in price

%change in quantity = 6-8/8*100= -25%

%change in price =6-4/4*100=50%

elasticity of demand=-25%/50%= -0.5

Since wages and demand for labour are inversely releated,elastiity of demand is negative. This shows both move in opposite direction. If one increases other decreases and vice versa.

Elasticity of demand -0.5 means when price of wages increases by 1% demand for workers decreases by 0.5%. This shows that demand for workers is inelastic