Suppose a wage increase from $17 to $19 an hour increases the number of job applicants from 42 to 56. What is the price elasticity of labor supply? Round to two decimal places and use the mid-point formula.

The formula to calculate a good's own price elasticity of supply is:

% change to quantity supplied / % change in price

To calculate the % change using the midpoint method:

(new value - old value) / mid point of new and old X 100 = %

mid-point = (new value + old value) / 2

The mid-point method is used to account for the fact that you will get two different supply elasticities whether you are increasing or decreasing the price. If you use the mid-point method you will get a consistent value whether you are increasing or decreasing the price.

% change in labor quantity = (56-42) / 49 = 28.58%

% change in wage = (19-17) / 18 = 11.11%

Price elasticity of labor supply = 2.57

Since the elasticity of labor supply is above 1, this is a relatively elastic labor supply. Firms in this market can offer a small increase in wages and have many workers show up. Conversely, a wage cut will cause this firm to lose many workers.