explaining elasticity of demand

Question 1

what are the factors affecting elasticity of demand

Answer 1

substitutes
% of total cost
time

Question 2

substitutes

Answer 2

how easy it is to substitute or replace workers when their wages go
lots of substitutes leads to high inelasticity
this is enhanced by a workers skill set needed for the job leading to lower wages as the equilibrium is lower
few substitutes demand will be inelastic leading to a higher price

Question 3

percentage of total cost inelasticity

Answer 3

what % of total cost is made up buy workers’ wages
wages paid to factory workers are a small % of Ford’s total cost. So even if workers wages increase by a lot, firm’s won’t care much because wages are such a small % of their costs. So demand will be unresponsive to changes in wage, suggesting inelastic demand !

Question 4

percenatages of total costs

Answer 4

if wages paid to workers made up a large % of a firms total costs, any increase in wage will have a big impact on the firm. They will therefore be very responsive to any changes in wage, suggesting elastic demand !

Question 5

time

Answer 5

in the short run if wages increase demand will be inelastic because there’s not enough to find substitutes firms will be unresponsive
they don’t have time to find other substitutes for worker like capital and labour etc

in the long run wages will be elastic because there’s enough time to find substitutes

Question 6

so how high and low will wages be in the short run and long run

Answer 6

in the short run due to inelastic demand wages will be higher
but in the long run due to elastic demand wages will be lower