If the absolute elasticity of labor demand is 2.0,then an eight percent increase in the wage will
A) increase employment by 16%.
B) increase employment by 4%.
C) decrease employment by 16%.
D) decrease employment by 4%.

Question

Quizplus · Accepted Answer

If the absolute elasticity of labor demand is 2.0, then a 1% increase in wages will result in a 2% decrease in employment. Therefore, an 8% increase in wages will lead to an 16% decrease in employment (8% x 2 = 16%).

If the Absolute Elasticity of Labor Demand Is 2