Pearson Edexcel IAL Economics: Labour demand, supply and wage determination (YEC11) – 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 3.3.4 Labour markets, items 1 to 3, in the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics (YEC11) specification, Issue 2, June 2018. The content is in Unit 3, Business behaviour, part of the additional International A2 (IA2) content and so the full International Advanced Level only. All firms, towns and figures are invented. Learn the content first in the study guide or the revision notes. See also the course hub, the checklist and the diagnostics.

Questions

1. Explain what is meant by saying that labour is a derived demand. [2]

2. A packing firm pays 30 an hour. Each worker packs 12 boxes an hour and boxes sell at 3.

(a) Calculate the extra revenue from one worker for an hour. [1] (b) State whether hiring is worthwhile. [1] (c) The price falls to 2.40. Calculate the new figure and explain the effect on labour demand. [2]

3. A firm raises its hourly wage from 15 to 16.5 and cuts employment from 400 to 376.

(a) Calculate the elasticity of demand for labour. [2] (b) Interpret your answer and calculate the effect on the wage bill. [3]

4. Explain two factors that would make the demand for labour at a car-wash firm more elastic. [4]

5. A bottling line can use workers or a machine. A worker costs 18 an hour and fills 9 crates; the machine costs 36 an hour and fills 16 crates.

(a) Calculate the labour cost and the machine cost per crate. [2] (b) The wage rises to 21. Calculate the new labour cost per crate and state what the firm should do. [2] (c) Calculate the wage at which the two methods cost the same. [1]

6. In Country A the income tax rate on a job paying 12 an hour for 35 hours a week falls from 25% to 20%.

(a) Calculate weekly take-home pay before and after the cut. [2] (b) Explain why labour supply may rise by less than the pay rise suggests. [2]

7. In a skilled trade the wage rises 8% and the number of workers rises from 250 to 255.

(a) Calculate the elasticity of supply of labour. [2] (b) Explain two reasons why supply is inelastic in this trade. [4]

8. In Town B, labour demand is QD = 700 - 20W and supply is QS = -100 + 30W, where W is the hourly wage.

(a) Calculate the equilibrium wage and employment. [3] (b) Net migration raises supply by 50 workers at each wage. Calculate the new equilibrium. [3] (c) Explain why the wage falls and employment rises. [2]

9. Explain how a trade union could change the supply of labour to an occupation and the wage. [4]

10. A public service has a pay budget of 2,400,000 and average pay of 32,000.

(a) Calculate the number of staff. [1] (b) Pay rises 4% with the same budget. Calculate the number of staff that can be paid, as a whole number. [2] (c) Inflation is 6%. Calculate the change in real pay to 1 decimal place. [2] (d) Explain two considerations other than the budget in setting public sector pay. [3]

11. In a market for care workers (invented), demand is QD = 800 - 20W and supply is QS = -200 + 30W.

(a) Calculate the equilibrium, then the new equilibrium after demand rises by 120 at each wage. [4] (b) Calculate the percentage change in the wage and in employment. [2] (c) Net migration then raises supply by 90 at each wage. Calculate the new equilibrium and evaluate whether the wage rise will last. [6]

Answers

1. Firms hire workers only to make goods or services [1]. So the demand for workers depends on demand for the product, for example fewer cars sold means fewer assembly workers hired [1] [2] Examiner insight: An example that shows the link from product to worker makes the point; the phrase “derived” alone is just the term repeated.

2. (a) 12 x 3 = 36 [1] [1] (b) 36 > 30, so yes, hire [1] [1] (c) 12 x 2.40 = 28.80, below 30 [1]. Revenue per worker is now less than the wage, so the firm hires fewer and demand shifts left [1] [2] Examiner insight: Compare the figure with the wage in words; a bare number leaves the decision unstated.

3. (a) Wage +10% [1]; employment -6%; elasticity = -6/10 = -0.6 [1] [2] (b) Inelastic as the figure is below 1 in size [1]. Wage bill before 15 x 400 = 6,000 [1]; after 16.5 x 376 = 6,204, a rise of 3.4% [1] [3] Examiner insight: Find the two percentage changes separately before dividing, and state that the answer is inelastic as well as its value.

4. First factor identified [1] and explained [1]; second factor identified [1] and explained [1]. Options: easy substitution: if machines can replace workers, a wage rise makes firms switch, so employment falls by a larger percentage. Customers elastic: a wage rise lifts prices, customers go elsewhere and output and labour fall more. Labour a large share of costs: a wage rise raises total costs sharply. Longer time: more time to adjust technology [4] Examiner insight: Name the factor and then say why it makes employment fall by a larger percentage than the wage rises.

5. (a) Labour 18/9 = 2.00 [1]; machine 36/16 = 2.25 [1] [2] (b) 21/9 = 2.33 [1], above 2.25, so the firm should switch to the machine [1] [2] (c) 2.25 x 9 = 20.25 [1] [1] Examiner insight: Cost per unit, not total hourly cost, is the fair comparison because the outputs differ.

6. (a) Before 420 x 0.75 = 315 [1]; after 420 x 0.80 = 336 [1] [2] (b) Many workers cannot change hours, so extra pay does not raise their supply [1]. Higher pay can let some people work fewer hours for the same income [1] [2] Examiner insight: Linking the tax cut to take-home pay and then to the decision to work earns more than saying “more incentive”.

7. (a) Workers +5/250 = +2% [1]; 2/8 = 0.25 [1] [2] (b) Long training: new workers cannot enter quickly [1][1]. Few spare workers: it is hard to attract people from other jobs without the skills [1][1] [4] Examiner insight: Each reason needs its consequence for supply, so say what stops quantity rising.

8. (a) 700 - 20W = -100 + 30W [1]; 800 = 50W, so W = 16 [1]; Q = 700 - 320 = 380 [1] [3] (b) New supply -50 + 30W [1]; 700 - 20W = -50 + 30W gives W = 15 [1]; Q = 400 [1] [3] (c) More workers are willing to work at each wage, creating a surplus at 16 [1]; employers can fill jobs at lower pay, so the wage falls and more jobs are filled [1] [2] Examiner insight: Write the new supply equation first; most slips come from changing the wrong coefficient.

9. A union may restrict entry through training or membership rules, so supply shifts left [1], and bargain for higher pay [1]. Fewer workers at each wage means a shortage at the old wage, so the wage rises [1] and employment falls [1] [4] Examiner insight: A direction for the supply shift and a result for both wage and employment are needed; “unions raise wages” alone is thin.

10. (a) 2,400,000/32,000 = 75 [1] [1] (b) 32,000 x 1.04 = 33,280 [1]; 2,400,000/33,280 = 72.1, so 72 staff [1] [2] (c) 1.04/1.06 - 1 [1] = -1.9% [1] [2] (d) Any two considerations, each identified [1][1]: recruiting and keeping staff against private sector pay; inflation and the cost of living; bargaining or national pay scales; public opinion of the service. One developed with a reason [1] [3] Examiner insight: Round only at the end, and interpret the staff figure: 72.1 means 72 can be paid, not 73.

11. (a) Original: 800 - 20W = -200 + 30W gives W = 20, Q = 400 [1]. New demand 920 - 20W [1]; 920 - 20W = -200 + 30W gives W = 22.4 [1], Q = 472 [1] [4] (b) Wage (22.4 - 20)/20 = +12% [1]; employment 72/400 = +18% [1] [2] (c) New supply -110 + 30W: 920 - 20W = -110 + 30W gives W = 20.6, Q = 508 [1][1]. The wage rise shrinks from 12% to 3% [1]. Supply may grow further as people train, since supply is more elastic over time [1]. If pay is set by government, the wage may not follow the market [1]. Judgement: the wage rise probably will not last unless demand keeps rising faster than supply, so it depends on migration and training [1] [6] Examiner insight: Compare the final figure with the starting point and finish with a verdict that rests on a factor you name.

Where marks are usually lost

• Describing a wage change as a shift of the labour demand curve.
• Not linking labour demand to demand for the product.
• Dividing the wage change by the quantity change.
• Stating inelastic or elastic with no figure to support it.
• Comparing total costs when outputs differ, instead of cost per unit.
• Moving the wrong curve, or the wrong coefficient, in a supply shift.
• Rounding too early in the staff calculation.
• Giving a list of public sector pay factors with no explanation.

Next steps

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

Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics (YEC11), Specification, Issue 2, June 2018, first teaching September 2018, published by Pearson Education Limited. Section 3.3.4 Labour markets, items 1 to 3.