The elasticity of demand for employees is -0.50. It is also estimated

The elasticity of demand for employees is -0.50. It is also estimated that the existing minimum wage (price floor) has increased the raise the wage by 25% above equilibrium wage. How much would the employment change if the price floor was eliminated?

A) Employment would decrease by 12.5%.
B) Employment would increase by 12.5%.
C) Employment would decrease by 25%.
D) Employment would increase by 25%.

ANSWER

B