Question

• For each of the following industries, briefly explain how the elasticity of demand for labour would be affected by the accompanying events.
  • restaurants: a substantial increase in the price of food
  • brick and mortar stores: the expansion of online retailing
  • agriculture: the merger (and formation of a monopoly) of the last two agriculture equipment manufacturers

Answer 1

If there is an increase in the price of food brick and mortar stores these stores will be less responsive towards changes in the wage rate for workers because they require labour hours. This makes the demand for labour less wage elastic

When there is an expansion of online retailing in agriculture, firms will be less responsive towards changes in the wage rate because that now require less workers. This makes the demand for labour is more wage elastic

When there is a merger between two large agricultural equipment manufacturers, production is likely to increase which implies that they will be less responsive towards changes in the wage rate. This makes the demand for labour less elastic.