OxfordAQA International A Level Economics
OxfordAQA International A Level Economics 3.3.4 The Labour Market Exam Questions
Free OxfordAQA International A Level Economics revision for 3.3.4 The Labour Market: what you need to know, common mistakes and exam-style questions with answers. Covers marginal revenue product, demand for and supply of labour, wage determination, monopsony, trade unions, discrimination and minimum wage laws.
Practise 3.3.4 The Labour Market with past papers
Once you have learnt this topic, find the 3.3.4 The Labour Market questions in real OxfordAQA International 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 OxfordAQA International A Level Economics 3.3.4 The Labour Market
The labour market applies microeconomic theory to employment and wages in Unit 3 of the OxfordAQA International A2 Economics course. You learn that the demand for labour is a derived demand explained by marginal productivity theory, what affects the supply of labour, and how wages are set in perfectly competitive labour markets. You then study imperfectly competitive labour markets, including monopsony and trade unions, discrimination in the labour market and the effects of minimum wage laws. The topic links to poverty and inequality in 3.3.5. Examiners often ask for wage elasticity explanations, monopsony diagrams and balanced evaluation of a national minimum wage.
What you need to know
- 3.3.4.1 Demand for labour Labour demand is derived from demand for the product. Marginal revenue product MRP = marginal physical product x marginal revenue, and a profit-maximising firm hires workers until MRP equals the wage. Elasticity of demand for labour depends on substitutability, the share of labour costs and product PED.
- 3.3.4.2 Supply of labour Supply to an occupation depends on the wage, non-monetary factors, qualifications and training needed, and the size of the working population. Pecuniary and non-pecuniary benefits both matter.
- 3.3.4.3 Competitive wage determination In a perfectly competitive labour market the wage is set where demand equals supply. Wage differentials result from differences in skill, productivity, demand and the supply of suitable workers.
- 3.3.4.4 Imperfect labour markets A monopsony employer faces an upward-sloping supply curve, so the marginal cost of labour exceeds the wage; it employs fewer workers at a lower wage than in a competitive market. Trade unions may raise wages, especially where they counter monopsony power.
- 3.3.4.5 Discrimination Discrimination by gender, ethnicity or other characteristics can reduce wages and employment for affected groups and lead to a misallocation of labour.
- 3.3.4.6 Minimum wage In a competitive market a minimum wage above equilibrium can cause unemployment. In a monopsony it can raise both wages and employment.
Common mistakes in 3.3.4 The Labour Market
- Saying a minimum wage always causes unemployment. In a monopsony labour market it can increase employment.
- Using demand for the product and demand for labour as the same thing. Demand for labour is derived from product demand.
- Forgetting that MRP includes marginal revenue, not just physical output.
- Treating trade unions only as causing unemployment. They may also improve productivity, communication and bargaining power against monopsonists.
- Explaining wage differences only by skill. Include non-monetary factors, discrimination, union power and the elasticity of labour supply.
Try three 3.3.4 The Labour Market exam-style questions
1. A worker's marginal physical product is 12 units per day and each unit sells at a constant price of $5. Calculate the worker's marginal revenue product per day. (1 mark)
Show the mark scheme answer
MRP = 12 x 5 = $60 per day.
2. Explain why a monopsony employer pays a lower wage and employs fewer workers than in a competitive labour market. (4 marks)
Show the mark scheme answer
The monopsonist faces an upward-sloping labour supply (average cost of labour) curve; to hire an extra worker it must raise the wage for all workers, so marginal cost of labour exceeds the wage; it employs where MRP = MCL, at a lower level of employment; and pays the wage on the supply curve at that employment, which is below the competitive wage.
3. Evaluate the case for raising the national minimum wage. (15 marks)
Show the mark scheme answer
A strong answer would analyse higher incomes for low-paid workers, reduced poverty, possible productivity gains and the monopsony case where employment can rise; then evaluate the risk of unemployment where labour demand is elastic, higher costs and prices, effects on small firms and young workers, and the size of the increase relative to the market wage; and reach a judgement.
3.3.4 The Labour Market FAQs
What does OxfordAQA International A Level Economics 3.3.4 The Labour Market cover?
It covers the demand for and supply of labour, marginal productivity theory, wage determination, monopsony, trade unions, discrimination and minimum wage laws.
Which unit is 3.3.4 The Labour Market examined in?
It is examined in Unit 3 (EC03), The economics of business behaviour and the distribution of income, an A2 unit with multiple choice, short answer, data response and essay sections.
Which labour market diagrams should I learn?
Learn the competitive labour market diagram, the MRP curve, the monopsony diagram with supply and marginal cost of labour, and how a minimum wage affects both a competitive market and a monopsony.
