Cambridge O Level Economics: Trade unions, factor demand, labour and capital, and market structure (2281)

This guide is for Cambridge O Level Economics (2281) and follows the syllabus for examination in 2026. It deals with 3.4 (trade unions), then 3.6 (firms and production), then 3.8 (market structure). Every candidate covers all of this content, as the subject is not tiered. All numbers in the worked examples are invented and illustrative.

Related pages: the revision notes, the practice set, the Cambridge O Level Economics hub, the printable checklist and the free diagnostics. For the wider topic see the Topic 3 overview.

What you must be able to do

Section	Outcome
3.4.1	Give a definition of a trade union
3.4.2	Describe what unions do: bargain collectively over pay, hours and conditions, defend jobs, and lobby the state
3.4.3	Weigh advantages and disadvantages for workers, firms and the government; explain what makes a union strong
3.6.1	Explain demand for factors: demand for the product, factor prices, availability, productivity
3.6.2	Compare labour-intensive and capital-intensive production: reasons, advantages, disadvantages
3.6.3	Distinguish production from productivity and give influences on each
3.8.1	Explain how many firms affect price, quality, choice and profit
3.8.2	Describe monopoly: characteristics, advantages, disadvantages

For 3.8 the syllabus leaves out the formal theory of perfect and imperfect competition and any diagrams, so this guide uses words and numbers only.

3.4 Trade unions

Definition and role (3.4.1 and 3.4.2)

A trade union is an organisation of workers that works to protect and improve its members’ pay, working conditions and job security. Its power comes from acting together: one worker has little bargaining power, but a group that can withdraw its labour has much more.

Its role covers three areas.

1. Collective bargaining. The union negotiates with an employer for all its members at once over pay, the length of the working week and the workplace itself (safety, breaks, holiday, contracts).
2. Protecting employment. It resists redundancies, argues for retraining or better redundancy terms, and supports members who are treated unfairly.
3. Influencing government policy. It lobbies on matters such as minimum wages, employment law, taxes and education.

Advantages and disadvantages (3.4.3)

The syllabus asks for three viewpoints. Learn them as three separate lists.

Viewpoint	Advantages	Disadvantages
Workers	Higher pay, better conditions, more job security, a collective voice	Fees; lost pay during a strike; a big pay rise may cost jobs; members may disagree with decisions
Firms	One body to negotiate with; clear communication; staff who feel heard may stay longer and work harder	Higher costs; strikes disrupt output; less freedom to cut staff or change working practices
Government	Stable, orderly bargaining; a way to consult workers on policy	Strikes reduce output and tax revenue; pay rises can push up prices; job losses raise spending on benefits

Factors influencing union strength

• Membership: the more of the workforce who join, the harder the union is to ignore.
• Unemployment: when it is low, workers are hard to replace, so the union is stronger.
• Skills: unions of scarce, skilled workers are strong because replacements are hard to find.
• Profitability: a firm making high profits can afford a pay rise, so a claim is easier to win.
• Demand for the product: if customers will keep buying, the firm can pass costs on and is more willing to settle.
• Funds and unity: a union with funds to support strikers, and members who act together, is more credible.
• Ability to substitute: if machines or other workers can easily replace members, the union is weaker.

Worked example 1: a pay claim

Illustrative firm in Country A: 50 workers earn 400 a week and produce 2,000 units a week. The union claims a 6% rise.

1. Old wage bill: 50 × 400 = 20,000. Labour cost per unit: 20,000 ÷ 2,000 = 10.00.
2. New wage: 400 × 1.06 = 424. New bill: 50 × 424 = 21,200, an extra 1,200 a week.
3. New labour cost per unit: 21,200 ÷ 2,000 = 10.60.
4. To keep it at 10.00, output must reach 21,200 ÷ 10 = 2,120 units, a 6% rise, or 42.4 units per worker instead of 40.

Evaluation chain. The firm can raise prices (if demand allows), accept lower profit, seek higher productivity, or cut jobs. If it cut 3 workers, the bill would be 47 × 424 = 19,928, but three people lose their jobs. Which route it takes depends on how sensitive customers are to price, how large labour is in total costs, and how strong the union is. The union must weigh a higher wage against possible job losses.

3.6 Firms and production

What drives factor demand (3.6.1)

Firms demand land, labour, capital and enterprise to make goods, so factor demand is a derived demand: it comes from demand for what the factor produces. Four influences matter.

• Demand for the product. If demand for chairs rises, the workshop wants more workers, wood and tools.
• Price of different factors. If wages rise relative to machine prices, the firm may switch towards capital.
• Availability. Scarce factors are costly or impossible to hire, so a firm uses less of them.
• Productivity. A factor that produces more is worth more to the firm, so demand for it rises.

Worked example 2. A workshop in Country A uses 10 workers to make 400 chairs a week, or 40 per worker. Demand for chairs rises 30%.

1. New output: 400 × 1.3 = 520.
2. Workers needed at 40 each: 520 ÷ 40 = 13.
3. If training lifts output to 52 per worker: 520 ÷ 52 = 10. Higher productivity removes the need to hire.

Labour-intensive and capital-intensive production (3.6.2)

Labour-intensive production uses a lot of labour relative to capital; labour is the biggest part of cost (hairdressing, hand-made furniture). Capital-intensive production relies mainly on machinery (bottling, car assembly).

Reasons for choosing a method: relative factor prices; the type of product (personal or custom goods suit labour, identical goods in bulk suit machines); size of the market; availability of finance and skilled workers; available technology.

	Advantages	Disadvantages
Labour-intensive	Low start-up cost; flexible; personal service; creates jobs	Higher cost per unit when wages are high; slower; errors; absence and strikes
Capital-intensive	High output; lower unit cost at scale; consistent quality; can run long hours	High set-up cost and borrowing; breakdowns; fewer jobs; needs skilled maintenance; risky if demand falls

Worked example 3. A firm makes 500 units a week. Method L uses 12 workers and 1 machine costing 400 a week. Method C uses 3 workers and 2 machines at 1,100 each a week. Workers earn 300 a week.

• Method L: 12 × 300 + 400 = 4,000, so 4,000 ÷ 500 = 8.00 a unit.
• Method C: 3 × 300 + 2 × 1,100 = 3,100, so 3,100 ÷ 500 = 6.20 a unit.

Method C is cheaper. If the wage fell to 150, L costs 2,200 (4.40 a unit) and C costs 2,650 (5.30 a unit), so L wins. The switch point is where 12w + 400 = 3w + 2,200, so w = 200. Cheaper labour favours labour-intensive methods.

Production and productivity (3.6.3)

• Production is total output.
• Productivity is how much each unit of a factor produces, most often output per worker or per hour worked.

Worked example 4. A farm in Country B grows 8,000 kg with 20 workers in year 1, and 9,000 kg with 25 workers in year 2.

• Productivity: 8,000 ÷ 20 = 400 kg; 9,000 ÷ 25 = 360 kg a worker.
• Production rose by 1,000 ÷ 8,000 = 12.5%. Productivity fell by 40 ÷ 400 = 10%.

Production grew only because more labour was used.

Influences on production: the quantity and quality of factors, technology, demand, working hours, natural events such as weather.

Influences on productivity: training and education, better machinery per worker, motivation (pay, conditions), good management and organisation, workers’ health, division of labour.

3.8 Market structure

Competitive markets (3.8.1)

Here “competitive” means many firms selling similar products. Effects:

• Price: rivals undercut each other, so no firm can charge much above its costs.
• Quality: firms improve quality to win customers.
• Choice: consumers can pick from many sellers and variants.
• Profit: pressure on price keeps profit low, and firms that cannot control costs may leave.

Limits: each firm is small and may miss economies of scale; low profit leaves less for research; some choice may only be trivial variety.

Monopoly (3.8.2)

A monopoly is a market in which one firm supplies all or most of the output.

Characteristics: a single dominant seller; barriers to entry (patents, licences, huge start-up costs, control of resources); few or no close substitutes; the firm can influence price.

Advantages: economies of scale; profits can fund research; patents reward invention; for services such as a water network, one provider avoids duplicating pipes.

Disadvantages: higher prices and lower output; little choice; weaker pressure to keep quality high or costs low; possible poor treatment of suppliers.

Worked example 5. An island market takes 120,000 units a month. One firm supplies 108,000 of them: 108,000 ÷ 120,000 = 90% share. If one firm supplied all 120,000 at an average cost of 5, it would spend 600,000. Four firms of 30,000 each at an average cost of 8 spend 4 × 30,000 × 8 = 960,000. Scale saves 360,000.

But the gain only reaches consumers if it is passed on. If the sole supplier charges 9, profit is 120,000 × (9 − 5) = 480,000. At 6.50 it falls to 180,000. Four competing firms charging 8.50 would earn 120,000 × (8.50 − 8) = 60,000 in total. Lower cost does not guarantee a lower price, which is why governments sometimes regulate monopolies.

Common errors

• Describing a union only as striking. Bargaining is its main activity.
• Giving one viewpoint when asked for workers, firms and government.
• Saying capital-intensive is always better. It depends on factor prices and market size.
• Treating a rise in production as a rise in productivity.
• Saying monopoly is always bad. Write both sides, then judge.
• Drawing diagrams for 3.8. They are not needed.

Official syllabus

The source is the Cambridge International syllabus for O Level Economics (2281), examination year 2026, version 2. The relevant parts are 3.4, 3.6 and 3.8.