CCEA A Level Economics
CCEA A Level Economics AS 1 Factor Markets: Labour Exam Questions
Free CCEA A Level Economics revision for AS 1 Factor Markets: Labour: what you need to know, common mistakes and exam-style questions with answers. Covers labour demand and supply, wage determination, wage differentials, trade unions, the minimum wage and economic rent.
Practise AS 1 Factor Markets: Labour with past papers
Once you have learnt this topic, find the AS 1 Factor Markets: Labour questions in real CCEA A Level Economics past papers and mark them with the mark scheme. Doing lots of real questions is the quickest way to learn how examiners ask about each idea.
About CCEA A Level Economics AS 1 Factor Markets: Labour
Factor markets: labour applies demand and supply to the market for workers within Unit AS 1: Markets and Market Failure. You need to explain why demand for labour is a derived demand, what shifts the demand for and supply of labour, and how wages are determined in a competitive labour market. You then explain wage differentials between occupations and groups, the effect of trade unions, and the impact of a national minimum wage set above equilibrium. The section finishes with economic rent and transfer earnings. CCEA questions often use a labour market diagram to analyse a minimum wage or a union pay claim and ask you to evaluate the outcome.
What you need to know
- Demand for labour Labour is a derived demand: firms want workers for the output they produce. Demand depends on wages, labour productivity, demand for the product and the price of capital that could replace labour.
- Supply of labour Depends on the wage rate, population, migration, skills and qualifications, non-monetary benefits and the attractiveness of the job.
- Wage determination In a competitive labour market the wage is set where demand for labour equals supply of labour. A shift in either curve changes the equilibrium wage and employment.
- Wage differentials Pay differs because of skill and training needed, productivity, demand for the product, non-monetary benefits, trade union power, discrimination and geographical factors.
- Trade unions and minimum wage A union may push the wage above equilibrium, raising pay for those employed but possibly reducing employment. A national minimum wage above equilibrium creates excess supply of labour, though effects depend on elasticity and productivity gains.
- Economic rent and transfer earnings Transfer earnings are the minimum payment needed to keep a factor in its current use (area under the supply curve). Economic rent is any payment above this. The more inelastic the supply of labour, the greater the share of economic rent.
Common mistakes in AS 1 Factor Markets: Labour
- Treating labour demand as independent of the product market; it is derived from demand for the good or service.
- Assuming a minimum wage always causes large-scale unemployment; the effect depends on elasticity of labour demand and how far it is set above equilibrium.
- Labelling the axes of a labour market diagram as price and quantity instead of wage rate and quantity of labour.
- Confusing economic rent with rent paid on property.
- Explaining wage differences only by effort; use demand and supply factors such as skills and productivity.
Try three AS 1 Factor Markets: Labour exam-style questions
1. Explain what is meant by derived demand for labour. (2 marks)
Show the mark scheme answer
Labour is demanded not for itself; but for the goods and services it helps to produce, so it depends on demand for the final product.
2. Using a diagram, analyse the likely effect of a national minimum wage set above the equilibrium wage. (6 marks)
Show the mark scheme answer
Labour market diagram with minimum wage above equilibrium; quantity of labour supplied rises and quantity demanded falls; excess supply of labour (unemployment) appears; workers who keep jobs earn more; size depends on elasticity of labour demand; productivity or spending effects may reduce job losses.
3. Distinguish between economic rent and transfer earnings, using a footballer as an example. (4 marks)
Show the mark scheme answer
Transfer earnings are the minimum needed to keep the player in football rather than their next best job; economic rent is the surplus above this; a top footballer's supply is highly inelastic as few have the talent; so most of the high wage is economic rent.
AS 1 Factor Markets: Labour FAQs
What does CCEA A Level Economics AS 1 Factor Markets: Labour cover?
Demand for and supply of labour, wage determination, wage differentials, trade unions, the national minimum wage, and economic rent and transfer earnings.
Which unit is this topic examined in?
It is in Unit AS 1: Markets and Market Failure, a 1 hour 30 minute paper with short-answer questions, a case study and an extended response question.
How do I evaluate a minimum wage question?
Consider the elasticity of labour demand, how far above equilibrium it is set, the sector affected, possible productivity gains and higher spending, and the effect on poverty and incentives to work.
