AQA A-Level Economics (7136) · Competitive & Concentrated Markets
Specification points
- The demand for and supply of labour; marginal revenue product.
- Wage determination in competitive and non-competitive markets.
- Monopsony, trade unions, the minimum wage and wage differentials.
Demand and supply of labour
- Demand for labour is a derived demand, based on the marginal revenue product (MRP) — the extra revenue a worker generates.
- Supply of labour depends on the wage, workforce size and skills, migration and non-monetary job factors.
The competitive wage is where labour demand equals labour supply.
Key definitions
| Term | Definition |
|---|---|
| MRP | The extra revenue from employing one more worker. |
| Monopsony | A single dominant buyer of labour. |
| Wage differential | A difference in wages between occupations or groups. |
Imperfect labour markets
- Monopsony — a single dominant employer can pay below the competitive wage and hire fewer workers.
- Trade unions — bargain for higher wages; against a monopsony they can raise *both* wages and employment.
- Minimum wage — reduces exploitation and low pay, but may raise unemployment if set above the equilibrium in a competitive market.
Wage differentials
Wages differ because of skills and qualifications, MRP, the danger or unpleasantness of jobs, union power, discrimination and elasticity of labour supply.
Worked example
A large employer dominates a local labour market (monopsony), paying below the competitive wage. A trade union or minimum wage can raise the wage *towards* the competitive level and increase employment, because the monopsonist had been restricting hiring — the key exception to the standard minimum-wage criticism.
Common exam mistakes
- Forgetting labour demand is derived and based on MRP.
- Assuming a minimum wage always raises unemployment (not against a monopsony).
- Confusing monopsony (buyer power) with monopoly (seller power).
Exam technique
Use labour demand/supply and MRP diagrams, and evaluate wage policies differently in competitive versus monopsonistic markets.
Quick revision
- Labour demand derived from MRP.
- Monopsony pays below competitive wage.
- Minimum wage/unions can raise wages and jobs against a monopsony.