After negotiation, the workers in an industry obtained from employers higher wage rates. The employers' spokesperson said 'the cost of the deal would have to be met through improved productivity or by reductions in other costs'. Analyse whether this deal can be incorporated into the economic theory of wages and consider the possible outcome for employment of such a deal.

Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

1. [25] Candidates should discuss how the theory might incorporate a negotiated wage rate and the effect of this on profits and employment. Discussion of how the improvement in productivity and reductions in costs might influence the outcome.
2. [18-25] For recognition of the theory applied to imperfect competition and a discussion of the effect on profits and employment of fixing a wage above the market rate. Consideration of shifting the MRP curve and/or the cost curve.
3. [14-17] For a competent explanation of the theory but with a more limited discussion of the shifts in MRP and/or costs.
4. [10-13] For a correct but very brief analysis and some poor evaluation.
5. [1-9] For an answer that shows some knowledge but does not indicate that the question has been fully grasped or where the answer is mostly irrelevant