OxfordAQA International AS and A-level Economics: Demand for and supply of labour (9640) – 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 OxfordAQA International AS and A-level Economics (9640) specification, version 1.2, sections 3.3.4.1 and 3.3.4.2: the demand for labour, marginal productivity theory and the supply of labour to different labour markets. Section 3.3 is extra International A2 content. All firms and figures are invented and illustrative. Learn the content first from the study guide and the revision notes. Course pages: hub and checklist. Not sure of your level? Try a free 10-minute diagnostic.

Questions

1. Define derived demand and give one example from the market for labour. [2]

2. An orchard sells fruit at 20 per crate. Total daily output with 1 to 5 pickers is 9, 17, 23, 27 and 29 crates.

(a) Calculate the marginal physical product of each picker. [2] (b) Calculate the marginal revenue product of each picker. [2] (c) The daily wage is 100. State how many pickers the orchard hires and justify your answer. [3] (d) The wage falls to 70. State the new number hired. [1]

3. Explain why the demand curve for labour slopes downward. [3]

4. A furniture maker has a worker whose marginal physical product is 8 chairs a week. The price is 90, but the marginal revenue from the extra chairs is 70.

(a) Calculate the worker’s marginal revenue product. [2] (b) Explain why marginal revenue is below price for this firm. [2] (c) Calculate how much the marginal revenue product would be overstated if price were used. [1]

5. Explain two factors that could cause a rightward shift in the demand for delivery riders in a city. [4]

6. A warehouse raises its hourly wage from 15.00 to 16.50. Employment falls from 600 to 570.

(a) Calculate the price elasticity of demand for labour. [3] (b) Calculate the wage bill before and after the change, and state the percentage change. [2]

7. In firm X labour is 80% of total costs. In firm Y it is 8%. Each firm faces a 10% rise in the wage rate, with other costs unchanged.

(a) Calculate the percentage rise in total costs for each firm. [2] (b) Explain which firm is likely to have the less elastic demand for labour. [2]

8. A call centre can now replace many staff with an automated system. Evaluate whether this makes its demand for labour more elastic. [9]

9. Explain one monetary and one non-monetary consideration that influences the supply of labour to night-shift security work. [4]

10. A wage rise of 10% (18.00 to 19.80) is offered in two invented labour markets. In data entry, willing workers rise from 2,000 to 2,300. For specialist surveyors, they rise from 400 to 408.

(a) Calculate the elasticity of supply of labour in each market. [4] (b) Explain the difference between the two results. [3]

11. Analyse the effect on the supply of labour in one occupation of (i) a pay rise in a rival occupation and (ii) a new training scheme that doubles the number of qualified people. [6]

Answers

1. Derived demand is demand for a factor of production that exists only because customers want the final output [1]. For example, the demand for crop pickers is derived from the demand for fruit [1]. [2] Examiner insight: A good definition says where the demand comes from. Name the final product in your example as well as the worker.

2. (a) MPP is the difference between successive outputs [1]: 9, 8, 6, 4 and 2 crates [1]. [2] (b) MRP = MPP × 20 [1]: 180, 160, 120, 80 and 40 [1]. [2] (c) The orchard hires 3 pickers [1]. The third picker has MRP of 120, above the wage of 100 [1]. The fourth has MRP of 80, below the wage, so hiring that picker would reduce profit [1]. [3] (d) At a wage of 70 the fourth picker (MRP 80) is worth hiring and the fifth (40) is not, so 4 pickers [1]. [1] Examiner insight: A hiring answer is strongest when it compares the last worker hired and the first one rejected with the wage, rather than just quoting a number.

3. Marginal physical product eventually falls as more workers are added, because of diminishing marginal returns [1]. So marginal revenue product falls with each extra worker [1]. A firm will only employ workers with lower MRP if the wage is lower, so the curve slopes down [1]. [3] Examiner insight: Answers gain credit for a connected chain, from productivity to MRP to the wage. A bare statement that firms hire more at lower wages explains little.

4. (a) MRP = MPP × MR [1] = 8 × 70 = 560 [1]. [2] (b) The firm has some control over price, so its demand curve slopes down [1]. To sell extra chairs it must lower the price on all of them, so the extra revenue is less than the price [1]. [2] (c) Using price gives 8 × 90 = 720, an overstatement of 160 [1]. [1] Examiner insight: Use the right formula and show the substitution. In a context question, the reason MR falls should refer to the firm’s own demand curve.

5. Higher demand for deliveries, for example more online shopping, raises the revenue from each rider [1], so MRP rises at each wage and demand shifts right [1]. A rise in rider productivity, for example better routing software, raises output per rider [1], so MPP and MRP rise and more riders are demanded at each wage [1]. [4] Examiner insight: A factor needs a link to MRP to earn the explanation point. Naming a change in the wage is a different thing, because that causes a movement along the curve.

6. (a) Wage change = 1.50 ÷ 15.00 × 100 = 10% [1]. Employment change = −30 ÷ 600 × 100 = −5% [1]. PEDL = −5 ÷ 10 = −0.5 (inelastic) [1]. [3] (b) Before: 15.00 × 600 = 9,000. After: 16.50 × 570 = 9,405 [1]. The wage bill rises by 405, which is 4.5% [1]. [2] Examiner insight: Show both percentage changes before dividing. A reader can only judge the method from the working, and the sign should be explained.

7. (a) Firm X: 80% × 10% = 8% [1]. Firm Y: 8% × 10% = 0.8% [1]. [2] (b) Firm Y is likely to have the less elastic demand [1]. The wage rise barely affects its total costs, so it has little reason to raise prices or cut output and hiring, whereas firm X faces a large cost increase [1]. [2] Examiner insight: A conclusion about elasticity should be tied to the calculation. Add “other things equal”, because substitution and the product’s elasticity also matter.

8. Analysis (up to 5 points): Automation is a closer substitute for workers [1]. If wages rise, the call centre can switch to the automated system [1], so the substitution effect is larger and employment falls by a bigger percentage than the wage rise [1]. Elasticity therefore rises [1]. The effect also works through the output effect: a higher wage lifts costs and prices, and if customers can switch provider, sales and labour demand fall [1]. Evaluation (up to 4 points): The effect depends on how much of the work the system can do. Complex calls may still need staff, so demand stays inelastic for them [1]. The share of labour in costs matters: if labour is a small share, the response will be small [1]. Time matters, because installing a system takes time, so it is more elastic in the long run than the short run [1]. Judgement: demand is likely to become more elastic over time, but by how much depends on the share of calls that can be automated [1]. [9] Examiner insight: Evaluation answers tend to gain credit when the judgement is justified by named conditions such as time, cost share or task complexity. Repeating the analysis does not count as evaluation.

9. A monetary consideration is the wage, including a night-shift premium [1]. A higher payment compensates workers for disruption, so more are willing to work at that wage [1]. A non-monetary consideration is unsocial hours and personal safety [1]. If hours are disruptive or the work is risky, fewer people will accept the job at a given wage [1]. [4] Examiner insight: Each consideration needs a reason why it changes the number willing to work. A list of words gains little.

10. (a) Data entry: (2,300 − 2,000) ÷ 2,000 × 100 = 15%, and 15 ÷ 10 = 1.5 [2]. Surveyors: (408 − 400) ÷ 400 × 100 = 2%, and 2 ÷ 10 = 0.2 [2]. [4] (b) Data entry is elastic and surveyor supply is inelastic [1]. Surveying needs long training and qualifications, so few extra people can enter quickly [1]. Data entry needs few specific skills, so workers can move in from other jobs easily [1]. [3] Examiner insight: Compare the two markets directly, with the figures, and give reasons rooted in training, skills and mobility.

11. (i) A pay rise in a rival occupation makes it more attractive [1], so some workers move there and fewer are willing to work in this occupation at each wage [1]. The supply curve shifts left [1]. (ii) A training scheme that doubles qualified people raises the number able to enter [1], so more are willing to work at each wage [1]. The supply curve shifts right [1]. [6] Examiner insight: Describe each shift in words, naming what the two axes show and which way the curve moves.

Where marks are usually lost

• Writing “movement” for a shift in the curve, or the reverse.
• Quoting a hiring number without comparing MRP with the wage.
• Using price where the firm needs marginal revenue.
• Taking a percentage change from the wrong base.
• Leaving out the sign or the meaning of an elasticity result.
• Listing determinants without a chain of reasoning.
• Treating supply of labour as about pay only.
• Evaluating with a single caveat and no overall judgement.

Next steps

• Re-read the revision notes and the study guide.
• Course pages: OxfordAQA A-level Economics hub and checklist.
• Take one of our all free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OxfordAQA International AS and A-level Economics (9640), specification version 1.2, first teaching September 2020, published by OxfordAQA. See sections 3.3.4.1 and 3.3.4.2.