1.6.2 The Supply of Labour — Practice Questions

Seven original multiple-choice questions on the supply of labour, including the backward-bending supply curve and labour immobility, written to the style and difficulty of AQA Paper 3 Section A.

7 questions AQA A-Level Multiple choice Model answers included

Not read the notes yet? Start with the 1.6.2 The Supply of Labour revision notes.

1. 1. The market supply curve of labour to an occupation usually slopes upwards because

   Definition in context

   Select one answer

   A Employers demand more workers when wages are low.

   B Higher wages attract more workers into the occupation.

   C The income effect always outweighs the substitution effect.

   D Workers become more productive as their wages rise.
   Show model answer

   Answer: B (Higher wages attract more workers into the occupation.). A higher wage makes an occupation more attractive relative to the alternatives, so more people are willing and able to work in it. That is what an upward-sloping supply curve records — the quantity of labour supplied rises with the wage rate. Note this is the market supply curve; an individual's supply curve can bend backwards at very high wages.

   Why the other options are wrong

   • A — This is the demand side of the market, and it describes firms rather than workers.
   • C — Where the income effect outweighs the substitution effect, the individual supply curve bends backwards. For the market as a whole the usual outcome is an upward slope.
   • D — Productivity may improve for other reasons, but the supply curve records how many people are willing to work at each wage, not how good they are at the job.

2. 2. An individual's supply curve of labour may bend backwards at very high wage rates because

   Definition in context

   Select one answer

   A The income effect becomes greater than the substitution effect.

   B The substitution effect becomes greater than the income effect.

   C Employers refuse to offer any more hours of work.

   D Higher taxes remove any incentive to work at all.
   Show model answer

   Answer: A (The income effect becomes greater than the substitution effect.). Two effects pull in opposite directions when the wage rises.
   The substitution effect raises the opportunity cost of an hour of leisure, encouraging more work.
   The income effect means the same standard of living can be reached in fewer hours, encouraging less work.
   At low wages the substitution effect dominates and the curve slopes up. At very high wages the income effect takes over and the worker chooses more leisure, so the curve bends back on itself.

   Why the other options are wrong

   • B — This is the case that produces the ordinary upward-sloping section of the curve, at lower wage rates.
   • C — The backward bend reflects the worker's choice about hours, not a restriction imposed by the employer.
   • D — Taxation affects the net wage and can influence incentives, but the backward bend arises from the income and substitution effects even without any tax.

3. 3. All other things being equal, which one of the following would shift the supply of labour to an occupation to the right?

   Applied reasoning

   Select one answer

   A A fall in the wage rate paid in that occupation.

   B A rise in the qualifications required to enter the occupation.

   C A rise in the wage rate paid in a competing occupation.

   D An increase in the number of people trained for that occupation.
   Show model answer

   Answer: D (An increase in the number of people trained for that occupation.). A shift requires a change in something other than the occupation's own wage. More trained people means more workers willing and able to do the job at every wage, so the supply curve moves right. Other rightward shifters include net migration, improved geographical mobility and better information about vacancies.

   Why the other options are wrong

   • A — A change in the occupation's own wage moves you along the supply curve rather than shifting it.
   • B — Tougher entry requirements reduce the pool of eligible workers, shifting supply left.
   • C — A better-paid alternative draws workers away, again shifting this occupation's supply left.

4. 4. A redundant steelworker cannot take an available job as a software developer because they lack the necessary skills. This is an example of

   Definition in context

   Select one answer

   A Frictional unemployment.

   B Geographical immobility of labour.

   C Occupational immobility of labour.

   D Voluntary unemployment.
   Show model answer

   Answer: C (Occupational immobility of labour.). Occupational immobility is the inability to move between types of work because skills are not transferable. It is a major source of labour market failure: vacancies and unemployment coexist because the unemployed cannot do the jobs available. The usual remedies are education, retraining and apprenticeships.

   Why the other options are wrong

   • A — Frictional unemployment is the short spell between leaving one job and finding another that a worker is qualified to do. Here the barrier is a lasting skills gap.
   • B — Geographical immobility is the inability to move between places, usually because of housing costs or family ties. This worker's obstacle is the skill set, not the location.
   • D — Voluntary unemployment means declining work at the going wage. This worker cannot obtain the job at all.

5. 5. High house prices in one region prevent unemployed workers elsewhere from moving there to fill vacancies. This is best described as

   Applied reasoning

   Select one answer

   A Geographical immobility, a cause of labour market failure.

   B Occupational immobility, a cause of labour market failure.

   C A backward-bending supply curve of labour.

   D An increase in the supply of labour to that region.
   Show model answer

   Answer: A (Geographical immobility, a cause of labour market failure.). Geographical immobility is the inability of workers to move between areas. Housing costs are the most common cause in the UK, alongside family ties and the cost of relocating. The result is a market failure: unfilled vacancies in one region sit alongside unemployment in another, so labour is not allocated where it is most valued.

   Why the other options are wrong

   • B — Occupational immobility concerns moving between types of job. These workers may be perfectly qualified; they simply cannot afford to live near the work.
   • C — The backward-bending curve describes an individual choosing fewer hours as wages rise. Nothing here concerns hours or high wages.
   • D — Supply to that region is restricted by the housing costs, which is exactly the problem.

6. 6. A government funds retraining programmes for workers made redundant by the decline of an industry. The most likely effect is to

   Applied reasoning

   Select one answer

   A Increase geographical mobility and shift labour demand right.

   B Increase occupational mobility and shift labour supply right.

   C Reduce occupational mobility by tying workers to one industry.

   D Reduce the supply of labour by keeping workers in training.
   Show model answer

   Answer: B (Increase occupational mobility and shift labour supply right.). Retraining attacks occupational immobility directly by giving workers skills that other industries want. Supply of labour to those expanding industries shifts right, vacancies are filled, and structural unemployment falls. It is a supply-side policy: slow to take effect, but it addresses the cause rather than the symptom.

   Why the other options are wrong

   • A — Retraining changes what workers can do, not where they can afford to live. It also acts on supply rather than demand.
   • C — New transferable skills widen a worker's options rather than narrowing them.
   • D — There may be a short delay while people train, but the purpose and lasting effect is to increase effective labour supply.

7. 7. Wages in an occupation rise sharply, but the number of qualified workers barely increases in the following year. The supply of labour to this occupation is best described as

   Applied reasoning

   Select one answer

   A Backward bending, because workers prefer leisure.

   B Perfectly elastic, because the wage can rise without limit.

   C Wage elastic, because pay has risen so much.

   D Wage inelastic, because training takes a long time.
   Show model answer

   Answer: D (Wage inelastic, because training takes a long time.). Elasticity of labour supply measures how far the quantity of workers responds to a wage change. Where an occupation requires lengthy training or qualifications — surgeons, airline pilots, electricians — the number available cannot rise quickly however attractive the pay becomes, so supply is wage inelastic in the short run. Given several years it becomes far more elastic, which is the same time-based logic as price elasticity of supply.

   Why the other options are wrong

   • A — A backward bend would mean workers supplying fewer hours as wages rise. Here the quantity has risen slightly, just not by much.
   • B — Perfectly elastic supply would mean an unlimited number of workers at the going wage — the opposite of what has happened.
   • C — Elasticity compares the percentage change in quantity with the percentage change in wage. A large wage rise producing a tiny quantity response is inelastic, however big the pay rise looks.