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Labour Markets — Exam Questions & Model Answers

Section 3.3.4 — worked exam questions with mark schemes, model answers and examiner commentary.

Economics · WEC13 · Unit 3 · 3.3.4

2 written questions · 12 marks

Time estimates come from one constant per paper — Economics Unit 3 is 2 hours · 80 marks — not from a per-question guess.

This page examines 0 of 17 requirements in 3.3.4 Labour Markets0.0%

Counted over the 2 written questions on this page and nothing else — not the whole question bank, and not the revision notes, which are measured separately and are much better covered. 2 of them carry no spec tag yet, so this number is a floor, not an estimate.

17 requirements in 3.3.4 that no question on this page examines
  • ECON-3.3.4-1a-1 demand for the final product (labour as a derived demand)
  • ECON-3.3.4-1a-2 productivity of labour
  • ECON-3.3.4-1a-3 price of the product
  • ECON-3.3.4-1a-4 wage rate relative to price of capital.
  • ECON-3.3.4-1b Factors that influence the elasticity of demand for labour.
  • ECON-3.3.4-2c-1 size of population
  • ECON-3.3.4-2c-2 net migration
  • ECON-3.3.4-2c-3 income tax rates
  • ECON-3.3.4-2c-4 level of welfare benefits
  • ECON-3.3.4-2c-5 government regulations
  • ECON-3.3.4-2c-6 trade unions.
  • ECON-3.3.4-2d Factors that influence the elasticity of supply of labour.
  • ECON-3.3.4-3a Labour market equilibrium.
  • ECON-3.3.4-3b Causes of changes in the equilibrium wage rate and quantity of labour as a result of shifts in demand curves and supply curves.
  • ECON-3.3.4-3c Wage setting in the public sector/state-owned enterprises.
  • ECON-3.3.4-4a Causes and consequences of the geographical immobility of labour.
  • ECON-3.3.4-4b Causes and consequences of the occupational immobility of labour.

Exam questions

Every question here carries a tariff that exists in IAL Economics. Open the mark scheme before the model answer and you will see what the examiner is paid to look for.

  1. Explain4 marksAO1 · AO26 min

    Explain what is meant by the derived demand for labour.

    Mark scheme
    1–2 marks
    Definition: labour demanded because of demand for the product it produces
    3–4 marks
    Application: example showing link between product demand and labour demand
    Model answer — 4 / 4
    What the marks in the margin meanKKnowledge/DefinitionAApplication
    Derived demand means that labour is not demanded for its own sake but because it is needed to produce goods and services that consumers want. K The demand for workers depends on the demand for the product they make — if product demand rises, firms need more workers to increase output. K

    For example, if demand for electric vehicles increases, car manufacturers like Tesla will hire more production workers, engineers, and battery technicians — the demand for these workers is derived from consumer demand for EVs. A Conversely, falling demand for print newspapers has reduced the derived demand for journalists and printers in that industry. A
    Examiner commentary
    Clear definition that correctly links labour demand to product demand. Two contrasting examples (Tesla EVs rising, print newspapers falling) show understanding in both directions. Avoid saying "firms need workers" without explaining why — always link back to product demand.

  2. Examine8 marksAO1 · AO2 · AO3 · AO412 min

    Examine how a monopsony employer might lead to lower wages and employment.

    Mark scheme
    Examine (8)
    Appendix 6: Requires knowledge, understanding, application, analysis and evaluation. Requires an explanation which includes a chain of reasoning, and diagrams where appropriate. Focuses on depth rather than breadth. Any relevant data provided needs to be interpreted. There should be a brief assessment of the arguments/factors/evidence.
    Level 1 — 1–2 marks
    Isolated knowledge and understanding. No application to the context and no chain of reasoning.
    Level 2 — 3–4 marks
    Knowledge applied to the context. A chain of reasoning is begun but not carried through; any data given is described rather than interpreted.
    Level 3 — 5–6 marks
    A developed chain of reasoning in context, with a diagram where one is appropriate. Depth rather than breadth; data interpreted. Assessment is implied rather than made.
    Level 4 — 7–8 marks
    A developed chain of reasoning in context AND a brief assessment of the arguments, factors or evidence — the clause that separates Examine from Analyse.
    Indicative content
    Knowledge: definition of monopsony. Application: named example (e.g. NHS). Analysis: MCL > wage, employs where MCL = MRP, pays lower wage from supply curve.
    Model answer — 5–6 / 8
    What the marks in the margin meanKKnowledgeAApplicationAnAnalysis chainDDiagram ref.

    Para 1

    A monopsony is a labour market with a single or dominant employer. Unlike a competitive market where firms are wage-takers, a monopsonist has wage-setting power. K The NHS is often cited as a monopsony employer of nurses in the UK — in many regions, the NHS is the only realistic employer for qualified nursing staff. A

    Para 2

    The monopsonist faces an upward-sloping labour supply curve — to attract more workers, it must offer higher wages. An Crucially, when it raises the wage for the new worker, it must also raise wages for all existing workers. This means the marginal cost of labour (MCL) is higher than the wage — the cost of hiring one more worker includes both their wage and the wage increase for everyone already employed. An

    Para 3

    The profit-maximising monopsonist employs workers up to the point where MCL = MRP (marginal revenue product). An However, it then pays the wage on the supply curve — which is lower than MRP. D The result is that both the wage and employment level are lower than they would be in a competitive labour market, where the wage equals MRP. An Workers are paid less than the value of their contribution, and the monopsonist captures the difference as additional profit. An
    Examiner commentary
    The mechanism is developed and correct, and the key insight is stated rather than assumed: MCL exceeds the wage because hiring one more worker raises the wage of everyone already employed. The NHS application is apt and a monopsony diagram would earn the diagram credit. It sits at Level 3 because the result is derived and never assessed. A Level 4 needs a brief assessment: a trade union or a minimum wage can raise both the wage and employment here, which is the opposite of their effect in a competitive labour market, so how much monopsony power the employer really has is what the outcome turns on.
    Why this loses marks — a mid-band attempt at the same question

    Not a real script, and not written for this panel. It is 2 of 3 paragraphs of the model answer above, with “Para 3” removed. Nothing is rewritten. Open the model answer above and the difference is exactly the paragraphs named here.

    What the marks in the margin meanKKnowledgeAApplicationAnAnalysis chain

    Para 1

    A monopsony is a labour market with a single or dominant employer. Unlike a competitive market where firms are wage-takers, a monopsonist has wage-setting power. K The NHS is often cited as a monopsony employer of nurses in the UK — in many regions, the NHS is the only realistic employer for qualified nursing staff. A

    Para 2

    The monopsonist faces an upward-sloping labour supply curve — to attract more workers, it must offer higher wages. An Crucially, when it raises the wage for the new worker, it must also raise wages for all existing workers. This means the marginal cost of labour (MCL) is higher than the wage — the cost of hiring one more worker includes both their wage and the wage increase for everyone already employed. An

    The band this attempt cannot reach

    Level 4 — 7–8 marks
    A developed chain of reasoning in context AND a brief assessment of the arguments, factors or evidence — the clause that separates Examine from Analyse.

    Where it tops out instead

    Level 3 — 5–6 marks
    A developed chain of reasoning in context, with a diagram where one is appropriate. Depth rather than breadth; data interpreted. Assessment is implied rather than made.

    No mark is put on this attempt. The full answer above is marked 5–6 / 8 by its own commentary; what a truncated version scores depends on the script, and inventing a number for it would be the kind of false precision this page exists to avoid.

Now try one yourself

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