AQA A-Level Economics: Labour Markets and Income Distribution
6 exam-style questions with full mark schemes and model answers. Write your own answer and the AI examiner marks it against the mark scheme.
Read the following extract and answer the question that follows.
The following extract was written for this exercise.
The Caldera Valley is an isolated rural region with one large employer, Vantor Foods, whose processing plant accounts for the great majority of jobs available to the region's food-process workers. Because the next-nearest plants are several hours away and many workers own homes locally, few can realistically take a job elsewhere. Over recent years Vantor has invested heavily in new machinery, and output per worker has risen sharply, yet average wages at the plant have barely moved. The firm publicly complains that it cannot fill its vacancies, but it has not raised the pay it offers. A regional trade union is now campaigning for a wage floor for process workers, while the national government is reviewing whether to raise the statutory minimum wage. Vantor's management warns that any forced pay rise would lead it to cut jobs and slow its investment in the valley.
| Vantor Foods, Caldera Valley | Two years ago | Last year |
|---|---|---|
| Process workers employed | 4,200 | 4,050 |
| Average weekly wage (credits) | 480 | 500 |
| Output per worker per week (units) | 300 | 345 |
| Reported unfilled vacancies | 120 | 410 |
Question: Evaluate the likely effects on wages and employment in the Caldera Valley of introducing a wage floor for Vantor's process workers, and assess whether the government should intervene in this labour market. [25 marks]
The market for qualified plumbers in a large city is highly competitive, with many small firms hiring workers and many workers seeking jobs, and no single employer or worker able to influence the going wage.
Explain how the wage and the level of employment are determined in this competitive labour market, with the help of a diagram. [15 marks]
The market for shelf-stackers in a competitive retail sector clears at a low equilibrium wage. The government then introduces a national minimum wage set above this wage.
Analyse the effect of this minimum wage on the market for shelf-stackers, with the help of a diagram. [9 marks]
A firm sells its output in a competitive product market at a fixed price of £20 per unit. It adds workers to a fixed stock of machinery, and the table below shows the total physical product as the number of workers rises.
| Number of workers | Total physical product (units per week) |
|---|---|
| 1 | 18 |
| 2 | 34 |
| 3 | 48 |
| 4 | 60 |
| 5 | 70 |
Each worker is paid a wage of £240 per week.
Calculate the marginal revenue product of labour at each level of employment, and identify the profit-maximising number of workers the firm should hire. (6 marks)
In a city, hospital consultants earn far more than hotel cleaners.
Explain why the wage of hospital consultants is likely to be higher than the wage of hotel cleaners. (5 marks)
The table below shows how total disposable income is shared between the five equal-sized income groups (quintiles) of households in the economy of Verenia, from the poorest fifth to the richest fifth.
| Quintile of households | Share of total disposable income (%) |
|---|---|
| Bottom (poorest) fifth | 5 |
| Second fifth | 11 |
| Third fifth | 16 |
| Fourth fifth | 23 |
| Top (richest) fifth | 45 |
Calculate the ratio of the share of total disposable income received by the top quintile to that received by the bottom quintile, and briefly interpret what this ratio shows about income inequality in Verenia. (4 marks)