Cambridge A Level Economics: Labour demand, supply and wages in perfect markets (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 sections 8.3.1 to 8.3.7 of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. It is A Level content, topic 8. Every firm, market and figure is invented. Revise first with the study guide or the revision notes. Course home: Cambridge A Level Economics. Tick off progress on the checklist.

Questions

1. (a) Define marginal revenue product. [1] (b) A potter sells every item at a fixed price of 7. Employing one more worker raises output by 9 items. Calculate the MRP of that worker. [2]

2. Explain why the demand for carpenters is a derived demand. [4]

3. A print stall sells posters at a fixed price of 8. Its total output of posters per day is 28, 52, 72, 88 and 100 with 1, 2, 3, 4 and 5 workers. (a) Calculate the MPP and the MRP of each worker. [3] (b) The wage is 120 per day. State how many workers the stall hires and justify your answer. [2] (c) The poster price falls to 7. Calculate the new employment at a wage of 120. [2] (d) State whether (c) is a movement along or a shift of the demand curve for labour. [1]

4. A furniture maker must cut its price to sell more. With 1, 2, 3 and 4 workers it makes 6, 11, 15 and 18 chairs and sells them at 50, 46, 43 and 41 each. (a) Calculate total revenue and the MRP of each worker. [3] (b) The wage is 100. How many workers are hired? [2]

5. Explain two factors, other than the wage, that would shift a firm’s demand curve for labour. [4]

6. A firm sells its output at a fixed price and uses a fixed amount of machinery. Explain why its demand curve for labour, which is its MRP curve, slopes downward. [3]

7. Explain two non-wage factors that affect the supply of labour to an occupation. [4]

8. In an illustrative region the wage for care assistants rises by 10%, and at the same time a new rule requires two extra years of training before starting the job. Analyse the effects on the supply curve of labour to this occupation. [4]

9. In a labour market, with W in £ per hour and quantities in thousands, QD = 260 − 8W and QS = −40 + 12W. (a) Calculate the equilibrium wage and employment. [3] (b) Calculate the excess at a wage of 18 and say what pressure it creates. [2] (c) Calculate the excess at a wage of 12. [1]

10. Using the market in question 9: (a) Demand falls to QD = 220 − 8W. Calculate the new equilibrium wage and employment. [3] (b) Calculate the percentage change in employment compared with question 9(a), to one decimal place. [2] (c) Supply then also changes to QS = 20 + 12W. Calculate the new equilibrium and comment on employment. [2]

11. Evaluate the usefulness of marginal revenue product theory for explaining wages in a perfect labour market. [8]

Answers

1. (a) Marginal revenue product is the extra revenue from employing one more worker [1] [1] (b) MRP = MPP × price [1] = 9 × 7 = 63 [1] [2] Examiner insight: A definition that mentions revenue, one extra worker and the word “marginal” is easier to credit than one that only says “what a worker earns for the firm”.

2. Workers are hired to produce goods and services, not wanted for themselves [1]. Demand for carpenters therefore depends on demand for what they build [1]. If demand for new homes or furniture rises, firms expect more sales and want more output [1], so they hire more carpenters. A fall in demand for those products reduces demand for carpenters [1]. [4] Examiner insight: Answers gain credit when they run the chain from product demand to output to labour. Simply stating “it is derived” repeats the question.

3. (a) MPP: 28, 24, 20, 16, 12 [1]. MRP = MPP × 8: 224, 192, 160, 128, 96 [2] [3] (b) Hire while MRP is at or above the wage [1]. MRP of the fourth worker is 128, above 120, and the fifth’s is 96, below it, so 4 workers [1] [2] (c) New MRP = MPP × 7: 196, 168, 140, 112, 84 [1]. The third worker’s 140 exceeds 120, the fourth’s 112 does not, so employment falls to 3 workers [1] [2] (d) A shift (to the left), since the product price changed, not the wage [1] Examiner insight: Show the full MRP row before choosing the number hired. A bare final number cannot show that you compared MRP with the wage at the margin.

4. (a) Total revenue: 300, 506, 645, 738 [1]. MRP is the change in TR: 300, 206, 139, 93 [2] [3] (b) The third worker adds 139, above 100, and the fourth adds 93, below it [1], so 3 workers [1] [2] Examiner insight: Using price as MR here would give the wrong MRP. Show TR first so the examiner can see you have used the change in revenue.

5. Any two factors, each explained for two marks. For example: a rise in demand for the product raises the revenue from each worker’s output [1], so MRP rises and the demand curve shifts right [1]. A rise in labour productivity, through training or better tools, raises MPP and so MRP [1], shifting the curve right [1]. Other answers: a rise in the price of capital makes labour relatively cheaper (right), or a higher cost of employing each worker besides the wage (left). [4] Examiner insight: State the direction of the shift as well as the factor. A list of factors without a direction or a reason gains little.

6. The machinery is fixed, so each extra worker has less capital to work with and shares it with others (diminishing marginal returns) [1]. MPP therefore falls as more workers are hired [1]. With a fixed price, MR equals price, so MRP = MPP × price also falls, giving a downward-sloping curve [1] [3] Examiner insight: Name the fixed factor and say what happens to MPP before concluding that MRP falls. Answers that jump straight to the shape of the curve leave the chain incomplete.

7. Any two factors, each worth two marks. For example: working conditions and hours [1]; better conditions make the job more attractive, shifting supply right [1]. The length of training needed [1]; a longer period raises the cost of entry and shifts supply left [1]. Others: pay in other occupations, migration, retirement age, state benefits. [4] Examiner insight: “Higher wages” is a movement along the curve, not a non-wage factor, and gains no credit here.

8. The 10% wage rise is a wage factor, so there is an extension along the existing supply curve [1] as more workers are attracted from other jobs [1]. The training rule is a non-wage factor [1] that raises the cost and delay of entry, shifting the curve left [1]. [4] Examiner insight: Separate the movement from the shift. The net effect on the quantity supplied depends on the size of each change, and saying so is sound.

9. (a) 260 − 8W = −40 + 12W [1], so 300 = 20W and W = 15 [1]. Employment = 260 − 120 = 140 thousand (supply: −40 + 180 = 140) [1] [3] (b) At 18: QD = 116 and QS = 176, so excess supply of 60 thousand [1]. Unemployed workers compete and the wage falls toward equilibrium [1] [2] (c) At 12: QD = 164 and QS = 104, so excess demand of 60 thousand [1] Examiner insight: Check the answer in both equations. Equal quantities show the solution is right and are worth showing.

10. (a) 220 − 8W = −40 + 12W [1], so 260 = 20W and W = 13 [1]. Employment = 220 − 104 = 116 thousand [1] [3] (b) Change = 116 − 140 = −24 [1]. −24/140 × 100 = −17.1% [1] [2] (c) 220 − 8W = 20 + 12W gives 200 = 20W, so W = 10 and employment = 140 thousand [1]. Employment returns to its original level while the wage is lower, because the supply increase offsets the fall in demand [1] [2] Examiner insight: When two curves move, state the resulting wage and employment separately. Candidates often assume both must fall.

11. Strengths (up to 3). The theory links pay to the value of a worker’s output [1]. It explains the hiring rule: employ until MRP equals the wage [1]. It also explains why demand slopes down, through diminishing returns, and why product demand changes labour demand [1]. Limits (up to 4). MRP is hard to measure when workers produce in teams or the output has no market price [1]. The model assumes a profit-maximising firm, identical workers and full information, which real markets rarely have [1]. It is shaped by supply too, and adjustment is slow, so wages may not match MRP in the short run [1]. Information is also imperfect in practice, so workers and firms may not respond to wage differences quickly [1]. Judgement [1]: the theory is a strong benchmark for a perfect market, but it should not be treated as a full account of actual pay. [8] Examiner insight: A judgement that says which limit matters most and why tends to be more convincing than a second list of points.

Where marks are usually lost

• Using price as marginal revenue when the firm has to lower its price to sell more.
• Showing only the final number of workers hired, without comparing MRP with the wage.
• Treating a wage change as a shift of the demand curve.
• Drawing or describing curves without naming the vertical axis as the wage rate.
• Listing labour supply factors without saying which way the curve shifts.
• Giving a higher wage as a “non-wage factor”.
• Skipping diminishing returns when explaining why the labour demand curve slopes downward.
• Giving evaluation as a list with no judgement.

Next steps

• Re-read the revision notes for the formulas and self-test.
• Return to the study guide for full explanations.
• Course hub: Cambridge A Level Economics, and the checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Source: Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment, sections 8.3.1 to 8.3.7.