3.5.2 Supply of Labour — Practice Questions

Six original multiple-choice questions on the supply of labour, written to the style and difficulty of Edexcel Paper 1 Section A.

6 questions Edexcel A-Level Multiple choice Model answers included

Not read the notes yet? Start with the 3.5.2 Supply of Labour revision notes.

1. 1. An employer keeps its pay unchanged but introduces flexible hours, an on-site nursery and private healthcare. The supply of labour to that employer will most likely

   Applied reasoning

   Select one answer

   A Fall, since the cost is met out of wages.

   B Increase, since the job is more attractive.

   C Move along the existing supply curve.

   D Stay the same, since the wage is unchanged.
   Show model answer

   Answer: B (Increase, since the job is more attractive.). The supply curve plots the number of people willing to work against the wage, so anything else that makes a job more or less attractive shifts the whole curve. Edexcel lists non-monetary benefits — working conditions, flexible hours, healthcare — among the shift factors, alongside monetary ones such as bonuses and overtime pay. More people are now willing to work here at any given wage, so supply shifts right.

   Why the other options are wrong

   • A — The stem says pay is unchanged. How the employer funds the benefits is a separate question about its costs.
   • C — A movement along the curve is caused by a change in the wage, and the wage has not moved.
   • D — The wage is only one of the things people weigh up. Conditions, hours and benefits all affect willingness to work at any given wage.

2. 2. Table 1 describes four changes affecting one occupation.
   From Table 1, the change that shifts the supply of labour to the left is

   Data interpretation

   Table 1: Four changes affecting one occupation

   	Change
   Change 1	Visa rules cut the number of overseas workers
   Change 2	The employer introduces flexible hours
   Change 3	A new college course trains more entrants
   Change 4	The wage in the occupation rises

   Select one answer

   A Change 1.

   B Change 2.

   C Change 3.

   D Change 4.
   Show model answer

   Answer: A (Change 1.). A leftward shift means fewer people willing and able to do the work at every wage. Tighter visa rules do exactly that: the pool of people permitted to take these jobs is smaller, whatever the pay. Edexcel lists migration policy among the factors that shift labour supply. With demand unchanged, the equilibrium wage rises and employment falls.

   Why the other options are wrong

   • B — Flexible hours make the job more attractive at any given wage, so supply shifts right.
   • C — More trained entrants means more people able to do the work, which also shifts supply right.
   • D — A change in the wage causes a movement along the supply curve, not a shift of it. That is the distinction the question turns on.

3. 3. As the hourly wage rises, an hour of leisure costs a worker more in forgone earnings, so they choose to work longer. This is

   Definition in context

   Select one answer

   A Geographical mobility of labour.

   B The income effect of a wage rise.

   C The substitution effect of a wage rise.

   D The wage elasticity of labour supply.
   Show model answer

   Answer: C (The substitution effect of a wage rise.). A wage rise makes leisure dearer, because every hour not worked now costs more in earnings given up. The substitution effect is the response to that change in relative price: workers substitute away from leisure and towards work. The income effect pulls the other way — a higher wage means the same standard of living can be had for fewer hours. Which of the two dominates decides the shape of an individual's supply curve, and it is the income effect winning at very high wages that makes it bend backwards.

   Why the other options are wrong

   • A — Geographical mobility is about moving between regions, not between work and leisure.
   • B — The income effect is the opposite response — working fewer hours, because the target standard of living is reached sooner.
   • D — The wage elasticity of supply measures how much the quantity supplied responds overall. It is the outcome of these two effects rather than one of them.

4. 4. Two occupations both see wages rise by 20%. One requires a seven-year qualification; the other can be learned in a fortnight. Compared with the second, the supply of labour to the first is

   Applied reasoning

   Select one answer

   A More wage elastic, since the pay rise is larger.

   B Perfectly elastic, since workers will always move.

   C Unaffected, since qualifications are already held.

   D Wage inelastic, since qualified workers are scarce.
   Show model answer

   Answer: D (Wage inelastic, since qualified workers are scarce.). Elasticity of supply is about how quickly the number of people willing and able to do the work can respond. Where the job can be learned in a fortnight, a 20% rise brings people in almost at once. Where it takes seven years to qualify, nobody can respond quickly however attractive the pay becomes, so the quantity supplied barely moves in the short run. Edexcel calls this the vocational aspect: the more specific the skills or qualifications required, the less elastic the supply.

   Why the other options are wrong

   • A — The pay rise is 20% in both occupations, so it cannot be what distinguishes them.
   • B — Perfectly elastic supply would mean unlimited workers available at the going wage, which a seven-year qualification rules out entirely.
   • C — Those already qualified are the existing supply. Elasticity is about whether more workers can be brought in.

5. 5. A coalfield closes. Ten years later many former miners in the area are still out of work, while vacancies go unfilled in cities two hundred miles away. The unemployment this describes is

   Applied reasoning

   Select one answer

   A Cyclical, caused by a shortage of demand.

   B Frictional, as workers move between jobs.

   C Real wage, caused by pay set above equilibrium.

   D Structural, caused by labour immobility.
   Show model answer

   Answer: D (Structural, caused by labour immobility.). Two kinds of immobility are at work together. Occupational immobility means mining skills do not transfer to the jobs that exist; geographical immobility means the workers cannot easily move to where the vacancies are, because of housing costs, moving costs, or simply not knowing about them. The two leave unemployment and unfilled vacancies sitting side by side for years. Edexcel treats labour immobility as an important cause of market failure precisely because it produces structural unemployment and skill shortages at the same time.

   Why the other options are wrong

   • A — Cyclical unemployment comes and goes with the economic cycle and affects the whole economy. This has persisted for a decade in one place while jobs exist elsewhere.
   • B — Frictional unemployment is the short gap between leaving one job and starting the next. Ten years is not a gap.
   • C — Real wage unemployment is caused by the wage being held above equilibrium, by a minimum wage or a union. Nothing here concerns pay levels.

6. 6. Two regions have identical occupations and identical wages. One has a large pool of unemployed workers with the relevant skills; the other has almost none. A firm in the second region raising its wage by 10% will find that

   Applied reasoning

   Select one answer

   A Applicants arrive as fast as in the first region.

   B Fewer extra applicants come forward than elsewhere.

   C No applicants at all come forward.

   D The supply of labour curve shifts to the right.
   Show model answer

   Answer: B (Fewer extra applicants come forward than elsewhere.). A wage rise moves the firm along its supply curve, and how far it moves depends on how many suitable people are available to respond. Where a large pool of unemployed skilled workers exists, a modest rise brings a lot of them forward and supply is elastic. Where almost everyone with the skills is already employed, the same rise brings few, because they have to be attracted away from other employers rather than out of unemployment. Edexcel lists the available pool of labour among the determinants of wage elasticity of supply.

   Why the other options are wrong

   • A — That would mean the size of the available pool made no difference, which is the opposite of what elasticity of supply describes.
   • C — Some workers will respond — the point is that fewer do, not that none do.
   • D — A rightward shift would need something other than the wage to change. The wage is exactly what has changed, so this is a movement along the curve.