AQA A Level Economics
AQA A Level Economics 3.1.6 The Labour Market Exam Questions
Free AQA A Level Economics exam questions for 3.1.6 The Labour Market, with a mark scheme for every pack. Covers marginal revenue product, demand for and supply of labour, wage determination, monopsony, trade unions, the national minimum wage and discrimination.
3.1.6 The Labour Market exam questions
1 question pack of real past exam questions, each with its mark scheme. Do not stop after a few: answer as many as you can without notes, then mark every answer with the mark scheme. The more questions you do, the more quickly you will spot how examiners ask about each idea.
About AQA A Level Economics 3.1.6 The Labour Market
The labour market is section 3.1.6 of AQA A Level Economics and is examined on Paper 1. It applies supply and demand to the market for labour, explaining the demand for labour through marginal productivity theory and derived demand, the influences on the supply of labour, and how wages are determined in perfectly competitive and imperfectly competitive labour markets. It then covers monopsony employers, the influence of trade unions, the national minimum wage and discrimination in the labour market. The topic links strongly to income inequality in 3.1.7 and to unemployment in macroeconomics, and examiners expect labour market diagrams with careful evaluation of real-world wage differences.
What you need to know
- Demand for labour Labour demand is derived from demand for the goods it produces. Marginal revenue product (MRP) = marginal physical product x marginal revenue, and the MRP curve is the firm's demand curve for labour. Elasticity of labour demand depends on substitutability, the share of labour in total costs and PED of the product.
- Supply of labour Influences include wage rates, non-monetary factors such as job satisfaction and conditions, qualifications and training, and population and migration. Elasticity of labour supply depends on skills and training needed and on time.
- Competitive wage determination In a perfectly competitive labour market the wage is set by industry demand and supply, and each firm is a wage taker. Wage differentials arise from differences in demand and supply, for example skills, productivity and compensating differentials for unpleasant work.
- Monopsony A monopsony is the sole or dominant buyer of labour. Because the marginal cost of labour exceeds the average cost, it employs fewer workers at a lower wage than a competitive market would.
- Trade unions Unions use collective bargaining to raise wages and improve conditions. In a competitive market a union wage above equilibrium may reduce employment; against a monopsony, a union can raise both wages and employment.
- Minimum wage and discrimination A national minimum wage above equilibrium may cause unemployment in competitive markets but can raise employment under monopsony. Discrimination by gender, ethnicity or age can lower wages and employment of affected groups and is reduced by legislation.
Common mistakes in 3.1.6 The Labour Market
- Treating MRP as just marginal product. MRP multiplies the extra output by the marginal revenue from selling it.
- Assuming a minimum wage always causes unemployment. In a monopsony labour market it can increase both wages and employment.
- Explaining wage differences only through demand. Supply matters too: scarce skills and long training reduce supply and raise wages.
- Drawing the monopsony employment level where the average cost of labour meets MRP. The monopsonist employs where marginal cost of labour = MRP, then pays the wage on the supply (ACL) curve.
- Ignoring non-wage factors. Job satisfaction, working conditions and location also affect labour supply to an occupation.
Try three 3.1.6 The Labour Market exam-style questions
1. Explain why the demand for labour is a derived demand. (3 marks)
Show the mark scheme answer
Firms do not want labour for its own sake; they demand workers because of the goods or services those workers produce; so if demand for the product rises, MRP rises and demand for labour increases.
2. Using a diagram, explain how a monopsony employer affects wages and employment compared with a competitive labour market. (6 marks)
Show the mark scheme answer
Monopsonist faces an upward sloping supply (ACL) curve and a higher MCL curve; profit maximising employment is where MCL = MRP; wage set from the supply curve at this employment; this is lower than the competitive wage and employment where supply equals MRP; diagram correctly labelled.
3. Evaluate whether increasing the national minimum wage will reduce employment. (15 marks)
Show the mark scheme answer
In a competitive market a wage above equilibrium causes an extension in supply and a contraction in demand, creating unemployment; impact depends on elasticity of labour demand; evaluate: in monopsony markets employment may rise; higher pay may raise productivity and motivation (efficiency wage); higher spending may boost AD; effects depend on the size of the rise relative to median earnings and the sector; supported judgement.
3.1.6 The Labour Market FAQs
What does AQA A Level Economics 3.1.6 The Labour Market cover?
It covers the demand for labour and MRP, the supply of labour, wage determination in competitive and non-competitive markets, monopsony, trade unions, the national minimum wage and discrimination.
Which paper is 3.1.6 examined in?
It is assessed on Paper 1, Markets and market failure, and can also appear on Paper 3, Economic principles and issues, which draws on the whole specification.
Which labour market diagrams do I need?
Learn the competitive labour market, the firm as a wage taker, the monopsony diagram with MCL and ACL, the effect of a trade union or minimum wage in competitive and monopsony markets, and a diagram showing the effect of discrimination.
