Edexcel A Level Microeconomics Questions
And Answers
Factors influencing demand for labour
Demand for final product - if rise in output > increase in productivity
Relative productivity of labour to capital - substitution effect
UK raises NMW from £7.50 to £7.83
£3,000 subsidy for hiring unemployed 18-24 y.o. = half UK's youth minimum wage
Factors influencing supply of labour
Cost of living
Cost of gaining skills
UK uni fees capped at £9,250 per year
Number of workers
UK raises state pension age from 67 to 68
Market failures in labour markets
Geographical immobility - inability of labour to move from one location to another
Occupational immobility - inability of labour to move form one industry to another
Employer monopsony -> wage-setting power -> wage lower than equilibrium
10% decline in real wages of NHS worker since start of recession
Solutions to market failures in labour market
Education and training
Housing market reform
Wage-setting
UK raises NMW from £7.50 to £7.83
Evaluate solutions to market failures in labour market
If increases elasticity of S(labour) -> lower wages
If D(labour) if elastic -> min wage will increase unemployment
Explain wage determination in competitive labour market
Firms are wage takers -> set W where S = D
S(labour) is perfectly elastic -> AC = MC -> max profits at MRP = MC -> employ Q₁
Positive statement (def.)
, Evidence based statement which can be proven true or false
Normative statement (def.)
Value judgment which cannot be tested
Scarcity (def.)
Lack of resources to fulfil everyone's wants and needs
Renewable resources (def.)
Resources which can be replenished over time
Non-renewable resources (def.)
Resources which cannot be replenished once they are used
PPF (def.)
Max amount of two goods that can possibly be produced in economy with given set
of resources, time and technology
Capital goods (def.)
Useful not in themselves but for goods and services they can help produce in future
Opportunity cost (def.)
Value of next best alternative forgone
Pareto efficiency (def.)
State of allocation of resources in which it is impossible to make any one party better
off without making at least one party worse off
Allocative efficiency (def.)
When value consumers place on good or service (reflected in price) = cost of
resources used up in production
Specialisation (def.)
When worker concentrates on performing specific task or narrow range of tasks in
production process
Division of labour (def.)
Separation of production process into individual tasks
Advantages of specialisation (micro)
Workers gain skills in narrow range of tasks -> higher productivity
Workers specialise in tasks to which they are best suited -> higher productivity
Worker isn't constantly changing tasks -> higher productivity
Division of labour -> cost efficient to provide workers with specialists tools -> higher
capital productivity
Disadvantages of specialisation (micro)
Monotony -> boredom -> lower productivity
Lack of diversification -> lower tolerance to external factors -> higher risk factor
Workers less transferable between jobs
Workers more replaceable by machinery
And Answers
Factors influencing demand for labour
Demand for final product - if rise in output > increase in productivity
Relative productivity of labour to capital - substitution effect
UK raises NMW from £7.50 to £7.83
£3,000 subsidy for hiring unemployed 18-24 y.o. = half UK's youth minimum wage
Factors influencing supply of labour
Cost of living
Cost of gaining skills
UK uni fees capped at £9,250 per year
Number of workers
UK raises state pension age from 67 to 68
Market failures in labour markets
Geographical immobility - inability of labour to move from one location to another
Occupational immobility - inability of labour to move form one industry to another
Employer monopsony -> wage-setting power -> wage lower than equilibrium
10% decline in real wages of NHS worker since start of recession
Solutions to market failures in labour market
Education and training
Housing market reform
Wage-setting
UK raises NMW from £7.50 to £7.83
Evaluate solutions to market failures in labour market
If increases elasticity of S(labour) -> lower wages
If D(labour) if elastic -> min wage will increase unemployment
Explain wage determination in competitive labour market
Firms are wage takers -> set W where S = D
S(labour) is perfectly elastic -> AC = MC -> max profits at MRP = MC -> employ Q₁
Positive statement (def.)
, Evidence based statement which can be proven true or false
Normative statement (def.)
Value judgment which cannot be tested
Scarcity (def.)
Lack of resources to fulfil everyone's wants and needs
Renewable resources (def.)
Resources which can be replenished over time
Non-renewable resources (def.)
Resources which cannot be replenished once they are used
PPF (def.)
Max amount of two goods that can possibly be produced in economy with given set
of resources, time and technology
Capital goods (def.)
Useful not in themselves but for goods and services they can help produce in future
Opportunity cost (def.)
Value of next best alternative forgone
Pareto efficiency (def.)
State of allocation of resources in which it is impossible to make any one party better
off without making at least one party worse off
Allocative efficiency (def.)
When value consumers place on good or service (reflected in price) = cost of
resources used up in production
Specialisation (def.)
When worker concentrates on performing specific task or narrow range of tasks in
production process
Division of labour (def.)
Separation of production process into individual tasks
Advantages of specialisation (micro)
Workers gain skills in narrow range of tasks -> higher productivity
Workers specialise in tasks to which they are best suited -> higher productivity
Worker isn't constantly changing tasks -> higher productivity
Division of labour -> cost efficient to provide workers with specialists tools -> higher
capital productivity
Disadvantages of specialisation (micro)
Monotony -> boredom -> lower productivity
Lack of diversification -> lower tolerance to external factors -> higher risk factor
Workers less transferable between jobs
Workers more replaceable by machinery
