3.5.3 Wage determination in competitive and non-competitive markets Quiz: Pearson Edexcel Economics A, Unit 3

The 20 questions

1. In a competitive labour market, the equilibrium wage is determined:

   • Where labour demand and labour supply intersect
   • Where the wage equals zero in every market
   • Where marginal product equals marginal cost for workers
   • Where demand and supply for goods intersect, with no reference to labour

2. A monopsony in the labour market is:

   • A single buyer of labour who sets wages below the competitive level
   • A market with no wage at all because workers are not paid
   • A competitive market in which all firms are wage takers
   • A single seller of labour who sets wages above the competitive level

3. What is the effect of a trade union negotiating a higher wage than the competitive level?

   • It sets wages at zero to protect employment levels
   • It always lowers wages for every worker in the market
   • It can raise wages above the competitive level, potentially reducing employment
   • It has no effect on wages in any labour market

4. A minimum wage set above the equilibrium wage in a competitive market causes:

   • A fall in wages below the equilibrium level
   • A shortage of labour, so vacancies rise sharply
   • No effect on the labour market at any level
   • A surplus of labour, so unemployment rises

5. Which is an example of public sector wage setting?

   • Pay set by private firms that employ public sector staff
   • Public sector pay set entirely by market supply and demand
   • A pay review body that recommends pay levels for public sector workers
   • A system in which the government never sets public sector pay

6. Which is a result of a freeze in public sector pay?

   • Recruitment may suffer if public pay falls behind comparable private pay, causing shortages
   • Recruitment always rises as public jobs become more attractive
   • No effect on recruitment or retention at any time
   • Pay freezes always raise the pay of public sector workers

7. A more elastic labour demand means that a given rise in wages causes:

   • A larger fall in employment
   • A smaller fall in employment than an inelastic demand would give
   • No change in employment at any wage level
   • A rise in employment because demand is more responsive

8. Demand for labour is 100 - 2W and supply is 20 + 3W (both in workers, W in £). What is the equilibrium wage?

   • £14
   • £10
   • £16
   • £20

9. Using the same market (demand 100 - 2W, supply 20 + 3W), how many workers are employed at equilibrium?

   • 52 workers
   • 32 workers
   • 80 workers
   • 68 workers

10. A minimum wage of £20 is set in the same market (demand 100 - 2W, supply 20 + 3W). What happens?

    • Supply is 80 and demand is 60, leaving a surplus of 20 workers
    • Supply is 60 and demand is 80, leaving a shortage of 20 workers
    • Both are 68 and there is no surplus at all
    • Supply is 40 and demand is 40, so the market clears at the minimum

11. A public sector pay freeze is imposed while private pay rises. What is the most likely effect?

    • Public sector workers may leave and recruitment may fall, creating shortages
    • No effect on the public sector workforce at any time
    • Public sector pay rises faster than private pay because of the freeze
    • Public sector recruitment rises automatically as pay is frozen

12. Why might a trade union be less effective in a low-skilled sector?

    • Union bargaining power is stronger when workers are easily replaced
    • Unions always control the supply of labour in every sector
    • Employers can easily replace workers, so the union's bargaining power is limited
    • Low-skilled workers have no labour supply to offer employers

13. Why does the elasticity of labour supply matter under a minimum wage?

    • Supply is perfectly inelastic in all cases at all wages
    • A more elastic supply produces a larger rise in labour supplied at the higher wage, so unemployment can be larger
    • A minimum wage never affects supply in any labour market
    • Labour supply does not change with wages in any market

14. A skills gap in a labour market means:

    • Firms have an excess of skilled workers at every wage
    • Employers cannot find workers with the required skills, even though unemployment exists
    • Workers have more skills than the jobs available require
    • There are no unfilled vacancies in the market at any time

15. Evaluate: is a minimum wage always harmful?

    • No, it has no effect on any labour market at any level
    • Yes, it is always harmful to workers in every market
    • Not necessarily: it can reduce poverty and monopsony power, but if set too high it may raise unemployment
    • Yes, but only in markets with monopsony power

16. A union raises the wage from £16 to £20 in a market where labour demand is 100 - 2W. By how many workers does employment fall?

    • 8 workers
    • 20 workers
    • 12 workers
    • 4 workers

17. Why can equilibrium wages differ between regions?

    • The equilibrium wage is always the same across all regions nationally
    • Immobility always equalises wages between regions over time
    • Differences in local labour demand and immobility mean wages and employment can vary across regions
    • Regional labour markets always have identical demand for workers

18. Why might public sector pay differ from private sector pay?

    • Public pay has no link to the skills of the workers at all
    • Private firms never negotiate pay with their employees in any case
    • Public pay is always set by market supply and demand alone
    • Public pay may reflect budgets and bargaining, not only marginal productivity or market scarcity

19. A minimum wage raises a firm's wage costs, and labour demand is inelastic. What is the likely effect on the total wage bill?

    • Employment falls only slightly while wages rise, so the wage bill increases
    • The wage bill falls to zero because workers are dismissed entirely
    • Employment rises sharply, so the wage bill falls to zero
    • Employment is unaffected in every case, so the wage bill is unchanged

20. Evaluate the claim: 'The competitive market always achieves the fairest wage outcome.'

    • True, because unions always set fair wages in every sector
    • False, because wages never reflect productivity in any market
    • Not necessarily: markets can produce low pay where bargaining power is unequal, so fairness is a normative judgement
    • True, because markets always produce fair outcomes for all workers

Related quizzes

• Sizes and types of firms Quiz · 3.1.1 · 20 questions
• How businesses grow Quiz · 3.1.2 · 20 questions
• Demergers Quiz · 3.1.3 · 20 questions
• Business objectives Quiz · 3.2.1 · 20 questions
• Revenue Quiz · 3.3.1 · 20 questions
• Costs Quiz · 3.3.2 · 20 questions
• Economies and diseconomies of scale Quiz · 3.3.3 · 20 questions
• Normal profits, supernormal profits and losses Quiz · 3.3.4 · 20 questions
• Efficiency Quiz · 3.4.1 · 20 questions
• Perfect competition Quiz · 3.4.2 · 20 questions