Chapter 8
Teacher notes
The labour market: wage determination
Activity, top of page 91.
Skilled workers: diagram should show inelastic, high demand (because of higher MRP) and
inelastic low supply, leading to higher wages
Unskilled workers: diagram should show elastic, low demand (because of lower MRP) and
elastic high supply, leading to lower wages
Activity, bottom of page 91.
Students should do some basic data analysis i.e. in 1966 footballers earned roughly 5 times
more than the average, whereas in 2007 they earned nearly 50 times more.
Reasons why pay is so high: highly inelastic supply owing to huge level of talent and
dedication required, therefore high economic rent; high MRP as their skills generate high
broadcasting and advertising revenues for the clubs; the combination of inelastic supply and
high MRP leads to high wages. Wages have increased by such a significant amount because
of the increased MRP due to the rise in broadcasting/advertising revenues.
Reasons why pay should not be so high: lots of substitutes for sports-people (i.e. rugby,
tennis etc) and footballers are no more skilled than other sports-people.
AQA Examination-style questions, page 95.
Data response question 1:
a) The earnings of consultants was higher than both GPs and nurses in 2003/4 with consultants
earning approx £90,000, GPs £82,000 and nurses £25,000. By 2006 the gap between consultants
had disappeared, both had risen to approximately £110,000. Nurses pay had also risen to approx
£30,000 but the rate of increase for consultants and GPs was bigger, so the differences in pay
between nurses and both types of doctor had increased.
b)
The BMA is a trade union, and negotiates for higher wages on behalf of its members, using collective
bargaining. It refuses to supply workers below a certain wage. Because there are few substitutes for
highly trained doctors and nurses, the BMA should have strong bargaining powers, and therefore
should be able to negotiate for high wages.
c) Doctors:
AQA Economics A2 © Nelson Thornes Ltd 2009
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Chapter 8
Teacher notes
Demand factors: high demand for doctors as population increases, increasing demand for specialist
doctors as medical science improves and more illnesses can be treated, inelastic demand for
treatment from patients
Supply factors: lengthy training therefore few substitutes and inelastic supply, profession limited to the
highly intelligent and highly qualified
Nurses
Demand factors: high demand for nurses as population increases, many nursing jobs have been
separated into lower skilled (‘nursing assistants’) and higher skilled jobs, inelastic demand for
treatment from patients
Supply factors: training becoming longer as nursing is becoming a graduate-only profession so
becoming more inelastic but currently doesn’t require lengthy training therefore lower wages;
greater pool of labour available from which to draw nurses therefore more competition for jobs,
pushing wages lower.
Overall, supply probably more relevant.
Essay question 2: (AQA June 2007)
d) Define MRP, link to demand for labour. Draw MRP curve.
Explain influences upon labour supply: pool of labour, qualification/skill level, training period etc.
Draw labour supply curve.
Diagram showing equilibrium wage rate where MRP = supply of labour.
e) Define trade union.
Explain concept of collective bargaining and link to mark ups.
Trade union diagram (figure 04 from chapter 8 of student book would be appropriate) showing effect
of a minimum wage (excess supply of labour or unemployment).
Discussion could include:
i) wage could be raised from a level below the market equilibrium thus reducing excess demand;
ii) wages could become closer to the competitive level particularly if the employer is a
monopsonist;
iii) trade union could provide training, raising skill level and therefore MRP, thus reducing the
potential for unemployment. the MRP curve may shift to the right reducing the impact on
employment.
AQA Economics A2 © Nelson Thornes Ltd 2009
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