Explain the economic theory of wage determination in perfectly competitive labour markets.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2018). The mark or mark type is shown in brackets.

1. [12] Theory predicts certain outcome based upon the demand (mrp) and cost/supply of labour. Explanation of determination of equilibrium output is required.
2. [9-12] L4: for a clear explanation of the theory and derivation of equilibrium position, a comment about possible changes in mrp or supply. MRP necessary for L4.
3. [7-8] L3: for a briefer explanation of the theory without any comment on possible changes or with a briefer explanation of the determination of the equilibrium.
4. [5-6] L2: for a much less developed answer with no elaborative comment and a vague or non-existent – mention about equilibrium.
5. [1-4] L1: 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.
6. [13] The analysis of imperfect competition should be explained; the final wage can be incorporated in the theory depending on the strengths of both sides in the bargaining process where there is monopsony. In the case of the doctors the TU did have some influence and the final wage was a compromise. This can be recognised by the theory and is not contradictory to it.
7. [9-13] L4: for a reasoned and clear explanation with accurate development of theoretical difficulties and a recognition that the final wage can be incorporated in the theory.
8. [7-8] L3: for a clear but undeveloped explanation of the imperfectly competitive market but without an explicit comment on the case in the question.
9. [5-6] L2: for a limited and not clearly presented attempt to consider the theory and with a greater concentration on the descriptive elements and with no link to the case in the question.
10. [1-4] L1: 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.