3.5.3

Question 1

Draw a graph that shows the labour market Equilibrium

Answer 1

Graph one - firm

• Y axis as wage rate
• X axis as quantity of labour
• Straight supply line as S = AC = MC
• Curved demand line going up then down labelled D = MRP
• Equilibrium lines

Graph two - industry
- Supply line carries to the next graph
- Y axis as wage rate
- X axis as quantity of labour
- Supply line as S
- Demand line as D=MRP
- Equilibrium lines

Question 2

Name 2 current labour market issue

Answer 2

Skill shortages
- Unemployment rates decrease so it’s harder to find skilled staff

Youth unemployment
- Since 2008 recession peaking at 2011 when it was 20%

Changes to retirement ages

Question 3

Name 3 ways the government can intervene in the labour market

Answer 3

• Mix/max wages
• Public sector wage setting
• Policies to tackle labour market immobility

Question 4

Draw a diagram to show min/max wage

*also explain the graph

Answer 4

• Y axis as wage rate
• X axis as quantity of labour
• Supply line as S
• Demand line as D=MRP
• Max wage as a line going through supply and demand line
• Min wage same as max but below
• Equilibrium lines
• Real wage unemployment shaded as the triangle pointing down

Question 5

What’s a policy to tackle labour market immobility?

Answer 5

Affordable housing.

Business won’t be inctevized to move so cheaper huosing means workers can move more freely an access housing in more areas especially within the UK.

Question 6

Why can’t public sector wages be increased despite the strikes?

Answer 6

1. Budget deficit
   - This is when the government is spending more than they gain in tax revenue. If the government increases wages this will increase national debt.
2. Inflation
   - Increasing wages will increase MPC. Thus increasing AD due to consumption (ceteris paribus) meaning even higher inflation.

Question 7

What does it mean when the demand or for labour is elastic?

Answer 7

Employers are sensitive to the changes in the wage rate leading to large increases/decreases in demand for labour.

Question 8

What does it mean when the demand for labour is inelastic?

Answer 8

Employers are not very sensitive to changes in the wage rate leading to small increases/decreases in demand for labour.

Question 9

What does it mean when the supply for labour is elastic?

Answer 9

This means workers are responsive to changes in the wage rate leading to larger increases/decreases in supply for labour.

Question 10

What does it mean when the supply for labour is inelastic?

Answer 10

Workers are not very responsive to changes in the wage rate leading to a small decreases/increases in supply for labour.