'A rise in wages and salaries will increase the costs of production, decrease profits, cause inflation and is detrimental.' Discuss whether the economic theory of wage determination supports the view that an increase in the level of wage rates is detrimental for the firm and for the worker.

Mark scheme

Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

1. Candidates should consider each part of the statement. The theory of wage determination should be explained. Do a rise in wages necessarily decrease profits, cause inflation and would it be detrimental to the firm and worker. Comment should be given on how the outcome may be affected by changes in productivity, changes in the demand for the product, the existence of trade union bargaining, a minimum wage affecting the supply, by large monopsonies forcing down wages from the competitive level. There should be a conclusion and a well-structured answer