The Labour Market: five questions to try now
Real past-paper questions, the answer key from the mark scheme, and the explanation that goes with it. No account needed to answer them.
Question 1
Globalisation can make some product markets more contestable. Which one of the following characteristics of globalisation is the most likely explanation for such an increase in contestability?
Answer: A.
A reduction in protectionism makes product markets more contestable because it lowers the barriers to entry for foreign firms. By removing tariffs, quotas, and other trade restrictions, domestic firms face more competition from international rivals. This increased threat of entry forces incumbent firms to become more efficient, innovate, and keep prices closer to average costs to prevent losing market share, which is the definition of a more contestable market.
Options B, C, and D are incorrect. Synchronisation of economic cycles (B) primarily affects macroeconomic stability rather than specific market contestability. Labour migration (C) focuses on the mobility of factors of production, which may influence costs, but doesn't directly reduce entry barriers. Finally, the growth of employment in emerging markets (D) is a feature of global economic development and shifts in production, but it doesn't automatically mean that specific product markets become easier for new firms to enter and compete in.
Options B, C, and D are incorrect. Synchronisation of economic cycles (B) primarily affects macroeconomic stability rather than specific market contestability. Labour migration (C) focuses on the mobility of factors of production, which may influence costs, but doesn't directly reduce entry barriers. Finally, the growth of employment in emerging markets (D) is a feature of global economic development and shifts in production, but it doesn't automatically mean that specific product markets become easier for new firms to enter and compete in.
Question 2
All other things being equal, which one of the following is most likely to cause the marginal revenue product of labour curve in the shoe manufacturing industry to shift to the right?
Answer: C.
Marginal revenue product is marginal physical product multiplied by the price of the output, so anything raising the product's price raises MRP. C does exactly that by increasing market demand for shoes. A changes the cost of labour, which shifts the supply of labour rather than the demand for it. B is a movement along the curve. D increases competition, which lowers price and would shift MRP left.
Question 3
Figure 8 shows the market demand (D L ) and supply (S L ) of labour in a labour market with a trade union. The initial trade union negotiated wage is W 2 . Figure 8 The trade union negotiates an increase in the wage from W 2 to W 3 . All other things being equal, unemployment in this labour market will increase by
Answer: C.
Unemployment in this market is the horizontal gap between labour supplied and labour demanded at the union wage, and the question asks how much that gap GROWS. Read both wages off the axis. At W2, demand is 45 000 and supply 53 000, so unemployment is 8 000. At W3, demand falls to 40 000 and supply rises to 56 000, so unemployment is 16 000. The increase is therefore 16 000 − 8 000 = 8 000 workers, answer C. The trap is D: 16 000 is the TOTAL unemployment at W3, not the increase, and the market already had 8 000 unemployed before the rise.
Question 4
The UK’s labour productivity increases by only 10% over a five year period. Over the same period its main trading partners increase their productivity by 25%. All other things being equal, the most likely consequence for the UK is
Answer: C.
Competitiveness depends on RELATIVE productivity: if rivals raise output per worker by 25% while the UK manages 10%, UK unit costs rise relative to theirs and its goods become dearer. That is a loss of competitiveness. It does not follow that the trade balance worsens by exactly the 15 percentage point gap, and imports would rise rather than decline.
Question 5
Increased output results from specialisation and the division of labour because they enable
Answer: B.
Specialisation raises output because each worker or country concentrates on what it does best, so the same resources produce more, greater efficiency. Exchange and money are what MAKE specialisation possible, not the reason output rises, and no country can produce beyond its production possibility boundary; trade lets it CONSUME beyond it.
What this practice covers
These questions are drawn from past AQA A-Level papers. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
What examiners see students get wrong here
These are the errors that cost marks on the labour market, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Forgetting that labour demand is derived.
- Confusing MRP with marginal physical product, MRP is measured in revenue.
- Drawing MCL below ACL for a monopsonist; it must be above.
- Reading the monopsonist's wage off the MRP curve instead of down to the supply curve.
- Claiming a minimum wage always causes unemployment, ignoring monopsony and efficiency wages.
- Saying unions always cost jobs, under monopsony they can raise wages and employment.
- Explaining wage differentials only by MRP, ignoring elasticity of supply and immobility.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: The Labour Market revision notes.