AQA A-level Economics: The National Minimum Wage and discrimination in labour markets (7136) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover The National Minimum Wage (3.1.6.6) and Discrimination in the labour market (3.1.6.7) in the AQA AS and A-level Economics specification (version 1.3), first taught from September 2015. The combined PDF prints the A-level versions as 4.1.6.6 and 4.1.6.7. All countries, firms and numbers are invented. Wages are in crowns (cr) per hour.

Read the study guide and revision notes first. The course hub is AQA A-level Economics and the printable checklist tracks progress.

Questions

1. State two conditions necessary for wage discrimination. [2]

2. In Country B’s market for kitchen workers, the demand for labour is L = 1,400 − 60w and the supply is L = 40w + 400, with L counting workers.

(a) Find the wage and number of workers when the market clears. [2] (b) A legal floor of cr 12 is set. Find how many are employed and how many more want work than can find it. [2] (c) Work out the percentage change in the total wage bill, and say what it suggests about how responsive demand for labour is. [2]

3. An employer in a monopsony labour market faces supply w = 3 + 0.005L, where L is the number of workers. The marginal revenue product of labour is MRP = 15 − 0.005L.

(a) Calculate employment and the wage in the absence of regulation. [3] (b) Calculate the effect of a minimum wage of cr 9. [2] (c) Calculate employment and unemployment if the minimum wage is cr 12. [2]

4. A restaurant has weekly costs of cr 6,000 and weekly revenue of cr 6,600. Staff paid the minimum wage cost cr 1,600 a week and staff just above it cost cr 800. The minimum wage rises by 5% and the second group receives 2%.

(a) Calculate the extra weekly cost. [2] (b) Calculate the price rise needed to protect profit, assuming the same sales volume. [2]

5. Explain two reasons why employment may not fall after a national minimum wage is introduced. [4]

6. Evaluate the case for a national minimum wage. [10]

7. In a firm, average hourly pay is cr 25.00 for men and cr 21.50 for women. Women in the same grade and working the same hours earn an average of cr 24.00.

(a) Express the gap between men’s and women’s pay as a percentage of men’s pay. [1] (b) Calculate the like-for-like gap. [1] (c) Calculate the share of the gap that is explained by grade and hours. [1] (d) Explain why the unexplained gap does not prove discrimination. [1]

8. An employer pays two groups, P and Q, and each worker adds cr 28 to revenue per hour, whichever group they belong to. Group P supply is w = 8 + 0.1L. Group Q supply is w = 2 + 0.2L.

(a) Calculate the employment and wage for each group when the employer maximises profit. [4] (b) Calculate the pay gap and use elasticities of supply to explain why it arises. [2] (c) Calculate the employer’s extra revenue over wage cost from paying less than the value of output. [2]

9. Explain how discrimination may affect the types of job that a group can obtain. [4]

10. Assess the advantages and disadvantages of wage discrimination for workers, employers and the economy. [10]

Answers

1. Any two: the employer has market power over wages (monopsony) [1]; the groups can be identified and kept apart, with different elasticities of labour supply or limited mobility [1] [2] Examiner insight: name the condition and give the reason it matters; “prejudice” alone is thin because in a competitive market discrimination would be competed away.

2. (a) 1,400 − 60w = 40w + 400, so 100w = 1,000 [1], w = cr 10 and L = 800 [1] [2] (b) Employment is the demand figure: 1,400 − 720 = 680 [1]. Supply is 40 × 12 + 400 = 880, so excess supply is 200 [1] [2] (c) Bill goes from 10 × 800 = 8,000 to 12 × 680 = 8,160, up 2% [1]. Employment falls 15% for a 20% rise in the wage, so demand is inelastic (−0.75) [1] [2] Examiner insight: show both equations being used so your method is visible, and give the elasticity as a ratio with its sign.

3. (a) Marginal cost of labour is 3 + 0.01L [1]. Setting it equal to MRP gives 12 = 0.015L, so L = 800 [1]. Wage from supply is 3 + 4 = cr 7 [1] [3] (b) Cr 9 is the competitive wage (MRP = supply gives L = 1,200 at cr 9) [1], so employment rises from 800 to 1,200 [1] [2] (c) MRP = 12 gives L = 600 [1]; at cr 12 supply is 1,800, so unemployment is 1,200 [1] [2] Examiner insight: the wage must be read from the supply curve, not from MRP; quoting the MRP as the wage paid is a common way to lose credit.

4. (a) 1,600 × 5% = 80 and 800 × 2% = 16 [1], total cr 96 [1] [2] (b) 96 ÷ 6,600 [1] = 1.45% [1] [2] Examiner insight: choose the base for a percentage carefully (revenue for price, costs for cost share) and say which you used.

5. First, monopsony: the employer pays below MRP, so a floor between the monopsony wage and the competitive wage raises employment [1] because the wage is no longer rising with each hire [1]. Second, productivity: a higher wage raises motivation and lowers turnover [1], so output per worker rises, which offsets the cost and keeps demand for labour [1] [4] Examiner insight: each reason needs a mechanism, so a list of three bare labels earns less than two developed chains.

6. Competitive model: a floor above equilibrium creates excess supply, so jobs fall [1]; higher costs lead to substitution towards capital [1]. Under monopsony, employment can rise if the floor is below the competitive wage [1]. Gains: higher incomes for the lowest paid [1], better work incentives and lower in-work benefit costs [1], possible productivity gains [1]. Costs: cost-push price rises [1]. Poverty is measured by household and the NMW may miss poor households and benefit some who are not poor [1]. Judgement: depends on elasticity of demand for labour, the level of the floor relative to typical pay and the time period [1], with a supported conclusion, for example that a modest floor is likely to help more than harm [1] [10] Examiner insight: a strong evaluation says what the conclusion depends on and then commits to a judgement; a list of pros and cons followed by “overall it depends” does not.

7. (a) (25 − 21.5) ÷ 25 = 14% [1] (b) (25 − 24) ÷ 25 = 4% [1] (c) (24 − 21.5) ÷ (25 − 21.5) = 2.5 ÷ 3.5 = 71.4% [1] (d) Other unmeasured factors such as career breaks, qualifications or negotiation may explain the rest [1] [4] Examiner insight: write the formula with the figures substituted, and say what the percentage is of.

8. (a) P: marginal cost 8 + 0.2L = 28, so L = 100 [1] and w = 8 + 10 = cr 18 [1]. Q: 2 + 0.4L = 28, so L = 65 [1] and w = 2 + 13 = cr 15 [1] [4] (b) Gap = (18 − 15) ÷ 18 = 16.7% [1]. Elasticity of supply is 18 ÷ (0.1 × 100) = 1.8 for P and 15 ÷ (0.2 × 65) = 1.15 for Q, so Q’s less elastic supply allows a lower wage [1] [2] (c) P: (28 − 18) × 100 = 1,000 and Q: (28 − 15) × 65 = 845 [1], total cr 1,845 per hour [1] [2] Examiner insight: set marginal cost, not the supply curve, equal to MRP, then read the wage off supply; mixing these up is an easy slip on this model.

9. Occupational segregation: a group is steered into lower-paid sectors or roles, for example through stereotypes [1], so their earnings and options are lower than for equally able others [1]. Glass ceiling or statistical discrimination: employers judge people by group averages and overlook them for promotion [1], leading to part-time, insecure or overqualified employment [1] [4] Examiner insight: name the type of employment affected, not just that pay is lower.

10. Workers: the favoured group gains higher pay [1], while the disadvantaged group loses pay, jobs, training and motivation [1]. Employers: lower costs and higher profit [1], but only with market power over wages [1]; risks include legal action, reputation damage and lost talent [1]. Economy: talent is misallocated and output falls below potential [1]; inequality widens and tax receipts and demand are lower [1]. A possible advantage is that perfect discrimination can hire the competitive number of workers, though the employer takes the surplus [1]. Evaluation: employer gains are short-run and depend on weak enforcement [1]; overall the disadvantages outweigh the advantages, because gains go to a few while the losses are spread widely [1] [10] Examiner insight: assess for each of the three groups named in the question, and give a final judgement that follows from your points.

Where marks are usually lost

• Using the competitive diagram when the question describes a monopsony.
• Reading the wage from the MRP curve instead of the supply curve.
• Calling every pay difference discrimination.
• Leaving out who gains and who loses from a policy.
• Listing effects of the NMW with no chain from wage to cost to outcome.
• Calculating a percentage change from the wrong base.
• Writing “it depends” without saying on what.
• Forgetting that wage discrimination needs market power.

Next steps

• Revision notes
• Study guide
• AQA A-level Economics hub and the printable checklist
• All free 10-minute diagnostics
• Book a free trial class

Official syllabus

AQA AS and A-level Economics specification (7135 and 7136), first teaching from September 2015, version 1.3, published by AQA. Sections 4.1.6.6 and 4.1.6.7.