Cambridge A Level Economics: Imperfect labour markets, wage gaps and economic rent (9708) – 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 outcomes 8.3.8 to 8.3.10 of the Cambridge International AS and A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Topic 8 is A Level content. All firms, markets and figures are invented for illustration and are not real statistics. Wages are in currency units (cu) per hour.

Learn the content first in the study guide and the revision notes. See also the course hub and the printable checklist.

Questions

1. State what is meant by a monopsony and give one example of where one could arise. [2]

2. In the market for port cleaners, demand for labour is L = 840 − 40W and supply is L = 80W − 240, where L is workers.

(a) Calculate the equilibrium wage and employment. [2] (b) A union secures a wage of 11. Calculate employment and the excess supply of labour. [3] (c) Calculate the wage elasticity of demand for labour between the two wages. [3] (d) Calculate the change in the total wage bill. [2] (e) Using (c), explain whether the union’s claim benefits its members as a group. [2]

3. The table shows a labour market for kitchen assistants.

Wage (cu)	6	7	8	9	10
Workers demanded	90	80	70	60	50
Workers supplied	30	50	70	90	110

(a) State the equilibrium wage. [1] (b) A national minimum wage of 10 is introduced. State employment and the excess supply of labour. [2] (c) Calculate the wage elasticity of demand over this change. [2] (d) State the effect of a national minimum wage of 7. [1] (e) Calculate the change in the wage bill for the 10 minimum. [1]

4. A quarry is the only employer in its district. The table shows the workers it can hire.

Workers	1	2	3	4	5	6	7	8
Wage needed (cu)	5	6	7	8	9	10	11	12
Total wage cost	5	12	21	32	45	60	77	96
MRP (cu)	16	15	14	13	12	11	10	9

(a) Calculate the marginal cost of labour of the second, third and fourth workers. [2] (b) State the employment and wage that maximise the quarry’s profit. [3] (c) State employment, and the range in which the wage would lie, if the labour market were competitive. [2] (d) A minimum wage of 9 is introduced. State the effect on employment. [3]

5. Evaluate the view that a national minimum wage always reduces employment. [8]

6. Pay for tunnel inspectors, who need a rare licence, is much higher than for shelf stackers. Explain two market forces that could cause this wage differential. [6]

7. A bakery sells each loaf for 6 cu. Worker P bakes 10 loaves an hour more than without P, and worker R adds 7.

(a) Calculate the MRP of each worker. [2] (b) Calculate the percentage by which P’s MRP exceeds R’s. [1] (c) Explain two reasons why actual pay differences might not match this gap. [2]

8. (a) Define transfer earnings and economic rent. [2] (b) A goalkeeper is paid 48 cu an hour. The best alternative job pays 30 cu. Calculate economic rent and its share of earnings. [2] (c) State the effect on rent if the best alternative job pays 40 cu. [1]

9. An occupation has supply W = 4 + 0.05L and demand W = 34 − 0.05L.

(a) Calculate equilibrium wage and employment. [2] (b) Calculate transfer earnings. [2] (c) Calculate economic rent. [1] (d) Demand rises to W = 40 − 0.05L. Calculate the new wage, employment and economic rent. [3] (e) Calculate the change in economic rent. [1]

10. Explain why a leading concert violinist earns more economic rent than a receptionist. [6]

11. Using the table in question 4, assess whether a union that negotiates a wage of 10 is likely to benefit members of the quarry workforce. [10]

Answers

1. A monopsony is a market with a single buyer of labour [1]. Example: a quarry that is the only employer in an isolated district [1]. [2] Examiner insight: Make sure the definition refers to a single buyer of labour; a single seller describes a monopoly, which is a different market.

2. (a) 840 − 40W = 80W − 240, so 1,080 = 120W [1]. W = 9, L = 840 − 360 = 480 [1]. (b) Employment: 840 − 440 = 400 [1]. Supply: 880 − 240 = 640 [1]. Excess supply = 640 − 400 = 240 [1]. (c) Employment −80 ÷ 480 = −16.7% [1]. Wage +2 ÷ 9 = +22.2% [1]. Elasticity = −0.75 [1]. (d) Before 9 × 480 = 4,320; after 11 × 400 = 4,400 [1]. Rise of 80 [1]. (e) Demand is inelastic (−0.75), so the wage rise outweighs the fall in employment [1]. Total pay to members as a group rises, although 80 jobs are lost [1]. Examiner insight: Part (e) gains credit when it uses the elasticity value from (c) and refers to the group, not just to individuals.

3. (a) Demand equals supply at 8 (70 workers) [1]. (b) At 10 demand is 50, so employment is 50 [1]; supply is 110, so excess supply is 60 [1]. (c) Employment −20 ÷ 70 = −28.6% and wage +2 ÷ 8 = +25% [1]. Elasticity = −1.14 [1]. (d) A minimum of 7 is below equilibrium, so it has no effect [1]. (e) 8 × 70 = 560 and 10 × 50 = 500, so the bill falls by 60 [1]. Examiner insight: Reading the demand figure, not the supply figure, as employment at a floor above equilibrium is the key step.

4. (a) Second: 12 − 5 = 7 [1]. Third: 21 − 12 = 9; fourth: 32 − 21 = 11 [1]. (b) Hire while MC of labour is at most MRP [1]. Fourth: MC 11 against MRP 13, so hire. Fifth: MC 13 against MRP 12, so stop, giving 4 workers [1]. Wage from the supply column = 8 [1]. (c) Hire while the wage needed is below MRP: sixth has 10 against 11, seventh has 11 against 10 [1]. 6 workers, with the wage between 10 and 11 [1]. (d) At 9 the quarry can attract 5 workers, and the marginal cost is a flat 9 for each of them [1]. The fifth has MRP 12, above 9; a sixth would need 10 for everyone, a marginal cost of 15 against MRP 11, so it hires 5 [1]. Employment rises from 4 to 5, though below the competitive 6 [1]. Examiner insight: Answers on a monopsony floor tend to be stronger when they compare employment before and after, and not only state the new figure.

5. Point 1: a floor above equilibrium creates excess supply and employment falls along demand [1]. Point 2: the fall is smaller if labour demand is inelastic [1]. Point 3: a floor at or below equilibrium has no effect [1]. Point 4: in a monopsony a floor between the monopsony and competitive wages can raise employment [1]. Point 5: higher pay may raise productivity and shift MRP right [1]. Point 6: more spending by low earners can raise demand for products [1]. Point 7: firms may adjust through prices, hours or substitution [1]. Judgement: the answer depends on the market structure, the elasticity and how far the floor is above the previous wage, so it does not always reduce employment [1]. [8] Examiner insight: Evaluation gains credit when it ends in a supported judgement about conditions, not a list of “it depends”.

6. Supply: the licence takes long training, so few can supply inspectors and the supply curve lies far left [1]; the wage needed to clear the market is higher [1]; stackers need little training, so supply is large [1]. Demand: an inspector’s MRP is high because errors are costly [1]; firms are willing to pay up to MRP [1]; stackers add less value [1]. [6] Examiner insight: Linking each force to the position of a demand or supply curve is stronger than naming it.

7. (a) P: 10 × 6 = 60; R: 7 × 6 = 42 [1][1]. (b) (60 − 42) ÷ 42 × 100 = 42.9% [1]. (c) Unions may raise pay for one group above its MRP [1]. Discrimination or poor mobility can widen or narrow gaps [1]. Examiner insight: Show 18 ÷ 42 explicitly; the base of the percentage is the lower MRP.

8. (a) Transfer earnings: minimum payment to keep a factor in its present use [1]. Economic rent: payment above transfer earnings [1]. (b) Rent = 48 − 30 = 18 [1]; share = 18 ÷ 48 = 37.5% [1]. (c) Rent falls to 8 (48 − 40) [1]. Examiner insight: State the opportunity cost as transfer earnings before subtracting.

9. (a) 30 = 0.1L, so L = 300; W = 4 + 15 = 19 [1][1]. (b) Area under supply = 300 × 4 + ½ × 300 × 15 = 1,200 + 2,250 [1] = 3,450 [1]. (c) Earnings 5,700 − 3,450 = 2,250 [1]. (d) 36 = 0.1L, so L = 360 [1]; W = 22 [1]. Transfer earnings = 1,440 + ½ × 360 × 18 = 4,680; earnings 7,920; rent = 3,240 [1]. (e) 3,240 − 2,250 = 990 [1]. Examiner insight: Define the triangle by its base (employment) and height (wage minus the supply intercept).

10. Supply of top violinists is highly inelastic because talent and training are rare [1]. Few substitutes exist [1]. The next best job pays little compared with performing, so transfer earnings are low [1]. High demand pushes the wage far above transfer earnings [1]. A receptionist’s supply is elastic because many workers can move into the job [1]; so most pay equals transfer earnings and rent is small [1]. [6] Examiner insight: Strong answers contrast both occupations rather than describing one.

11. At the monopsony wage the quarry hires 4 workers at 8 [1]. A negotiated wage of 10 makes marginal cost flat at 10 up to 6 workers [1]. MRP is at least 10 up to the seventh worker, but only 6 are supplied at 10, so employment rises to 6 [1]. The wage rises 25% [1]. The bill rises from 32 to 60 [1]. This matches the competitive outcome [1]. Limits: a wage of 13.5 gives only 3 workers because the fourth worker’s MRP of 13 is below it [1], so jobs fall below 4 [1]. Judgement: members gain jobs as well as pay only while the wage stays below 13 [1], and if the quarry is a monopsony [1]. [10] Examiner insight: Use the table figures in the argument, then state a conclusion about the range of wages that helps members.

Where marks are usually lost

• Using supply as employment when a floor is above equilibrium.
• Forgetting the sign of an elasticity.
• Reading the monopsony wage from the MC column.
• Treating total pay as rent without subtracting the alternative.
• Describing a union as raising wages with no job effect.
• Giving “it depends” in evaluation without naming the condition.
• Using a base of the new value when calculating a percentage change.

Next steps

• Review the revision notes and the study guide.
• Visit the course hub and the checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge International AS & A Level Economics 9708, syllabus for examination in 2026, 2027 and 2028, Cambridge University Press & Assessment. Outcomes 8.3.8 to 8.3.10.