Eduqas A Level Economics
Eduqas A Level Economics Demand and Supply in Labour Markets Exam Questions
Free Eduqas A Level Economics revision for Demand and Supply in Labour Markets: what you need to know, common mistakes and exam-style questions with answers. Covers wage determination, labour demand and supply, elasticity of labour, wage differentials, flexibility, the national minimum wage and migration.
Practise Demand and Supply in Labour Markets with past papers
Once you have learnt this topic, find the Demand and Supply in Labour Markets questions in real Eduqas 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 Eduqas A Level Economics Demand and Supply in Labour Markets
This Eduqas microeconomics topic applies demand and supply analysis to the market for labour. You study wage determination, what shifts the demand for and supply of labour, what makes them elastic or inelastic, and why wages differ between occupations, genders and regions. The second part, labour market issues, looks at labour market flexibility, the national minimum wage and migration, and links them to supply side performance. Note that the Eduqas specification states marginal revenue product theory is not required, so focus on derived demand and diagram shifts. Examiners like minimum wage diagrams and want balanced evaluation that depends on the elasticity of labour demand.
What you need to know
- Demand for labour Labour demand is a derived demand: it depends on demand for the product the workers make. It shifts with product demand, labour productivity, the price of capital that can substitute for labour and non-wage costs such as employer National Insurance.
- Supply of labour The supply of labour to an occupation depends on wages, non-monetary benefits, training and qualifications needed, working conditions and population or migration. Supply shifts when these non-wage factors change.
- Elasticity of labour demand and supply Labour demand is more elastic when labour is a large share of total costs, when capital is easy to substitute and when product demand is elastic. Labour supply is less elastic where long training is required, for example surgeons.
- Wage differentials Wages differ because of differences in skills, qualifications, productivity, trade union power, discrimination, regional cost of living and compensating differentials for unpleasant or risky jobs.
- Labour market flexibility A flexible labour market adjusts quickly to change. Flexibility is affected by trade union power, employment regulation, welfare payments and income tax rates. It can lower unemployment and raise competitiveness, but can increase job insecurity.
- National minimum wage A legal minimum set above equilibrium acts as a price floor. Standard analysis predicts excess supply of labour (unemployment), but the effect is small if labour demand is inelastic, if higher pay raises productivity, or if spending power boosts product demand.
- Migration Immigration increases labour supply, which can hold down wages in some sectors, fill skills shortages and raise total output. Emigration can cause a brain drain from the sending country.
Common mistakes in Demand and Supply in Labour Markets
- Drawing marginal revenue product curves and spending time on MRP theory. The Eduqas specification says MRP theory is not required; use simple derived demand and shifts.
- Labelling the axes Price and Quantity on a labour market diagram. Use Wage rate on the vertical axis and Quantity of labour on the horizontal axis.
- Stating that a minimum wage always causes unemployment. The size of the effect depends on how far it is set above equilibrium and on the elasticity of labour demand.
- Explaining wage differentials only by how hard people work. Use the spec factors: skills, training, productivity, bargaining power, discrimination and compensating differentials.
- Assuming migration only reduces wages. It also increases demand in the economy and may fill shortages, so the overall effect is uncertain.
Try three Demand and Supply in Labour Markets exam-style questions
1. Explain why the demand for labour is a derived demand. (2 marks)
Show the mark scheme answer
Firms hire workers not for their own sake but to produce goods and services; so labour demand depends on (is derived from) demand for the final product.
2. Using a diagram, analyse the likely effects of a rise in the national minimum wage on employment in the hospitality sector. (6 marks)
Show the mark scheme answer
Minimum wage set above equilibrium wage; quantity of labour demanded falls and quantity supplied rises; creates excess supply (unemployment); diagram with wage floor and gap shown; effect larger if labour demand is elastic, e.g. labour is a high share of costs in hospitality; but higher wages may raise productivity and spending, reducing job losses.
3. Give two reasons why train drivers may be paid more than retail assistants. (2 marks)
Show the mark scheme answer
Train drivers need lengthy training, so labour supply is inelastic and limited; strong trade union bargaining power; greater responsibility and safety critical role (any two).
Demand and Supply in Labour Markets FAQs
What does Eduqas A Level Economics Demand and Supply in Labour Markets cover?
It covers wage determination, the demand for and supply of labour and their elasticities, wage differentials, labour market flexibility, the national minimum wage and migration.
Do I need marginal revenue product theory for Eduqas?
No. The Eduqas specification states that marginal revenue product theory is not required. Use derived demand, shifts in labour demand and supply, and elasticity instead.
How should I evaluate the national minimum wage?
Weigh the predicted fall in employment against higher living standards and possible productivity gains. Say what the outcome depends on, such as the elasticity of labour demand, the size of the rise and the state of the economy.
