Edexcel IGCSE Economics (4EC1) · Section B: Business Economics
Specification points
- Competitive markets and monopoly; the effects on price and choice.
- The demand for and supply of labour; wage determination.
Competition and monopoly
Market structure describes the degree of competition.
- A competitive market has many firms selling similar products; firms are price takers, so consumers gain lower prices and more choice, and firms must be efficient.
- A monopoly is a single dominant firm protected by barriers to entry; it can charge higher prices and restrict output, though it may gain economies of scale and fund innovation.
More competition → lower prices, more choice, greater efficiency. Monopoly → higher prices and less choice.
Key definitions
| Term | Definition |
|---|---|
| Monopoly | A market dominated by a single firm. |
| Barrier to entry | An obstacle preventing new firms competing. |
| Derived demand | Demand for labour that comes from demand for the product. |
The labour market
Wages are set by the demand for and supply of labour:
- Demand for labour is a derived demand — it depends on demand for the product and on worker productivity.
- Supply of labour is lower where a job needs rare skills or long training, so those workers are paid more.
Wage differences
Wages differ because of skills and qualifications, productivity, the danger or unpleasantness of a job, trade-union power and government policy (the minimum wage).
Worked example
A surgeon earns far more than a shop assistant. Surgery needs years of training and rare skills, so supply is very limited, while the value of the work is high, so demand is high — both push the wage up. Shop work needs little training, so supply is plentiful and wages are low.
Common exam mistakes
- Saying monopolies are always bad — note economies of scale.
- Forgetting labour demand is derived from product demand.
- Explaining wages only by supply and ignoring demand.
Exam technique
Compare competition and monopoly on price and choice, and explain wage differences using both demand and supply of labour.
Quick revision
- Competition: lower prices, more choice. Monopoly: higher prices, barriers to entry.
- Labour demand is derived; wages set by demand and supply of labour.