OCR A Level Economics: Supply of labour, economic rent and wage models (H460) – 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 follow the OCR A Level Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021, on the supply of labour, economic rent and the wage determination models in Component 1, Microeconomics. The specification labels no content as AS or Extension. All data are invented and illustrative.

Revise first with the study guide and the revision notes. Also see the OCR Economics hub, the printable checklist and the free diagnostics. Questions 6 to 8 share one market.

Questions

1. A skilled pastry chef earns £48,000 a year. Her next best job would pay £30,000.

(a) Define transfer earnings. [1] (b) Calculate her economic rent and express it as a percentage of her earnings. [2]

2. A warehouse raises its hourly wage from £12.00 to £13.50. The number of workers offering their labour rises from 800 to 836. Calculate the wage elasticity of supply and interpret it. [3]

3. Explain two non-monetary factors that affect the supply of labour to the night-shift security industry. [4]

4. The table shows one person’s chosen weekly hours (invented).

Wage (£/h)	10	15	20	25	30
Hours	30	36	40	37	33

(a) Calculate the elasticity of hours with respect to the wage between £15 and £20. [2] (b) Calculate it between £20 and £25. [2] (c) Explain the change of sign using substitution and income effects. [3]

5. Supply of a rare skill is w = 4 + 0.01L, where w is the annual wage in £000 and L is the number of workers. The wage is £16,000 (w = 16).

(a) Calculate employment, total earnings, economic rent and transfer earnings. [4] (b) Demand rises and the wage becomes w = 20. Calculate the new economic rent. [2] (c) State one reason why rent would be smaller if supply were more elastic. [1]

6. In a labour market, demand (MRP) is w = 30 - 0.02L and supply is w = 6 + 0.01L, with w in £ per hour and L in workers.

(a) Calculate the equilibrium wage and employment. [3] (b) A new licence requirement shifts supply to w = 9 + 0.01L. Calculate the new equilibrium and the percentage change in the wage. [3]

7. In the original market from question 6, a union negotiates a wage of £18.

(a) Calculate employment, the number willing to work, and unemployment. [3] (b) Calculate the wage bill before and after. [2] (c) Use the midpoint method to find the wage elasticity of demand over this range and interpret it. [2] (d) State one reason why the union’s gain might not last. [1]

8. Suppose the market in question 6 (original supply) has a single employer.

(a) Derive the marginal cost of labour and find the profit-maximising employment. [3] (b) Calculate the wage paid, the MRP of the last worker and the gap between them. [2] (c) A wage floor of £15 is introduced. Calculate the effect on employment. [3]

9. Evaluate the likely effect on wages and employment of a bilateral monopoly. [8]

10. A night-shift role pays £19.50 an hour. A comparable day role pays £15.00.

(a) Calculate the night premium as a percentage of the day wage. [2] (b) Explain two reasons for wage differentials other than compensation for unpleasant work. [4]

11. Evaluate the usefulness of wage determination theories in explaining pay in different regional and occupational sectors. [10]

12. A 6% pay rise in an invented occupation raises labour supply by 1.2% in the first year and by 9% after eight years.

(a) Calculate the wage elasticity of supply in each period. [2] (b) Explain why the two values differ. [2]

Answers

1. (a) What a worker must be paid to stay in the current job, which equals what the next best job would pay [1]. (b) Rent = 48,000 - 30,000 = £18,000 [1]. 18,000 ÷ 48,000 = 37.5% [1]. [3] Examiner insight: name the next best earnings as the transfer earnings before subtracting; the subtraction alone does not show you know which figure is which.

2. Wage change = 1.50 ÷ 12.00 = 12.5% [1]. Supply change = 36 ÷ 800 = 4.5% [1]. EWS = 4.5 ÷ 12.5 = 0.36, inelastic, because supply rises proportionately less than the wage [1]. [3] Examiner insight: show both percentage changes so the working is visible, and interpret the value using the word inelastic with a reason.

3. Any two, each identified then explained. For example: unsocial hours reduce supply because workers lose family and sleep time, so a higher wage is needed to compensate [1][1]. Personal safety risk deters workers, so supply is lower at any wage [1][1]. [4] Examiner insight: a factor that only restates pay (such as overtime rates) is monetary; keep to non-pay features and link each to willingness to supply.

4. (a) Wage +33.3% [1]; hours 36 to 40 = +11.1%, elasticity = +0.33 [1]. (b) Wage +25% [1]; hours 40 to 37 = -7.5%, elasticity = -0.30 [1]. (c) A higher wage makes leisure dearer, so the substitution effect raises hours [1]. A higher wage also lets the person reach a target income with fewer hours, so the income effect lowers hours [1]. Above £20 the income effect outweighs the substitution effect, so the net effect is negative [1]. [7] Examiner insight: name both effects and say which dominates; describing only one gives an incomplete explanation of a backward bend.

5. (a) 16 = 4 + 0.01L, so L = 1,200 [1]. Total earnings = 16 x 1,200 = 19,200 [1]. Rent = 0.5 x (16 - 4) x 1,200 = 7,200 [1]. Transfer earnings = 19,200 - 7,200 = 12,000 [1]. (b) L = (20 - 4) ÷ 0.01 = 1,600 [1]. Rent = 0.5 x 16 x 1,600 = 12,800 [1]. (c) A flatter supply curve leaves a smaller triangle between the wage line and the curve [1]. [7] Examiner insight: state the area you are calculating (the triangle above supply); give units as £000 per year so totals are not misread.

6. (a) 30 - 0.02L = 6 + 0.01L [1] gives L = 800 [1] and w = £14 [1]. (b) 30 - 0.02L = 9 + 0.01L gives L = 700 [1] and w = £16 [1]. Wage change = 2 ÷ 14 = +14.3% [1]. [6] Examiner insight: equate the two curves in writing, then check the answer in both equations; it is the quickest self-check available.

7. (a) Demand at 18: (30 - 18) ÷ 0.02 = 600 employed [1]. Supply at 18: (18 - 6) ÷ 0.01 = 1,200 willing [1]. Unemployment = 600 [1]. (b) Before: 14 x 800 = £11,200 [1]. After: 18 x 600 = £10,800 [1]. (c) Employment change = -200 ÷ 700 = -28.6%; wage change = 4 ÷ 16 = 25%; elasticity = -1.14 [1]. Elastic, so the wage bill falls [1]. (d) For example, firms substitute capital for labour over time, or the unemployed undercut [1]. [8] Examiner insight: the midpoint base should be the average of the two values; using the starting value for a large change gives a different, less reliable figure.

8. (a) Total cost = (6 + 0.01L)L, so MCL = 6 + 0.02L [1]. Set MCL = MRP: 6 + 0.02L = 30 - 0.02L [1], so L = 600 [1]. (b) Wage from supply = 6 + 6 = £12 [1]. MRP = 30 - 12 = £18, so the gap is £6 [1]. (c) At £15, demand is (30 - 15) ÷ 0.02 = 750 [1]. Workers willing at £15 = 900, which is more than 750, so 750 are hired [1]. Employment rises by 150, from 600 to 750 [1]. [8] Examiner insight: the wage is read off the supply curve, not MCL; marking the wrong curve is a common way to lose the whole sequence of reasoning.

9. Define it: one employer facing one union [1]. The employer would push for the monopsony outcome, with lower wage and employment [1]. The union would push for a higher wage [1]. Theory gives a range, not a single wage [1]. The outcome depends on bargaining power, such as strike threats against relocation threats [1]. A union can offset monopsony power and raise both wages and employment [1]. An over-aggressive union may push the wage above MRP and cut employment [1]. Judgement: the result depends on relative power and the elasticity of labour demand, so the answer is a likely range, not a certain outcome [1]. [8] Examiner insight: the evaluation gains credit when it names what the result depends on; “it depends” alone does not.

10. (a) Premium = 4.50 ÷ 15.00 [1] = 30% [1]. (b) Any two, each with explanation. Skills and human capital: training raises MRP, so firms can pay more [1][1]. Union bargaining strength: a union with high coverage can negotiate a premium [1][1]. (Also acceptable: barriers to entry, monopsony power, discrimination, region.) [6] Examiner insight: “other than compensation” excludes risk and unsocial hours; repeating the stem’s explanation scores nothing.

11. Competitive MRP theory fits sectors with many employers and measurable output [1]. It is weaker in public services with national pay scales [1], and where team output cannot be split by worker [1]. Monopsony explains low pay where one employer dominates a region or specialist occupation [1]. It is weaker where several employers lie within commuting distance [1]. Union bargaining theory fits high-density sectors [1]. Regional differences also reflect mobility and living costs [1]. Occupational differences reflect skills, licensing and barriers to entry [1]. Real markets mix the models, so none works alone [1]. Judgement: the best model is the one whose assumptions match the case (employers, visibility of output, union coverage) [1]. [10] Examiner insight: tie each theory to a named type of sector; general praise or criticism of “the model” earns little.

12. (a) Short run: 1.2 ÷ 6 = 0.2 [1]. Long run: 9 ÷ 6 = 1.5 [1]. (b) In the short run the workforce is largely fixed, with little time to train or move [1]. In the long run people can train, migrate and enter from education, so supply is more elastic [1]. [4] Examiner insight: give the reason for the difference, not just the two numbers.

Where marks are usually lost

• Reporting a ratio without both percentage changes.
• Treating all earnings as economic rent.
• Reading the monopsony wage off the MCL curve.
• Stopping at “wages rise” without following a union wage through to unemployment.
• Naming the substitution and income effects but not saying which dominates.
• Using the starting value when the midpoint method is asked for.
• Writing “it depends” with no statement of what it depends on.
• Leaving out units, such as £000 per year.

Next steps

• Recall with the revision notes and re-read the study guide.
• Course pages: the OCR Economics hub and the checklist.
• Try the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OCR, A Level in Economics (H460), specification Version 3.0 (June 2026), for first assessment in 2021, published by OCR.