Microeconomic Decision Makers · 4 question types
Past paper frequency (2018 to 2024)
This topic accounts for approximately 8% of your exam marks.
Wage determinants, minimum wage effects, and trade union impact appear regularly in Section B; typically 6 to 10 marks.
A 4-mark "explain the factors that determine wages" question rewards distinct, well-explained reasons. They fall into demand-side, supply-side and institutional groups.
Demand for labour depends on the demand for the product the worker helps to make (derived demand) and on the worker's productivity. A worker who produces more output per hour, or output the firm can sell for more, is worth more, so firms demand such workers more strongly and pay them more.
Supply of labour depends on how many workers have the relevant skills and are willing and able to do the job. The fewer the qualified workers available, the higher the wage employers must offer to attract them.
Two institutions can lift wages above the level the market alone would set: a can negotiate higher pay for its members through collective bargaining, and a national sets a legal floor below which employers cannot pay.
Analyse how market forces can change wages (6 marks)
What comes up: A 6-mark question asking you to analyse how the demand for and supply of labour push a wage up (or down).
Write (two marks each): (1) An increase in demand for labour — because labour demand is a derived demand, when demand for the product rises firms expand output and compete for more workers, driving the wage up. (2) A fall in the supply of labour — if fewer workers are qualified, or the labour force shrinks, employers must offer more to attract the workers available. (3) Higher productivity — a worker who generates more revenue per hour is worth more, so the firm will pay more to retain them.
Watch out: Do not write "demand for labour rises" without saying why. The second mark is for tracing it back to demand for the firm's product (derived demand); a bare "demand rises" earns only one of the two marks.