A Level Economics AQA Practice Exam

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What does elasticity of demand for labour measure?

The total wages paid by employers
The responsiveness of labor demand to changes in wage levels
The number of unemployed workers in the market
The fixed wage rates in different industries

The correct answer is: The responsiveness of labor demand to changes in wage levels

The elasticity of demand for labor specifically measures how responsive the quantity of labor demanded by employers is to changes in wage levels. When wages rise, employers may hire less labor due to increased costs, while a decrease in wages may encourage employers to hire more. This responsiveness reflects the relationship between wage changes and labor demand. In contrast, the total wages paid by employers represent the aggregate outflow of funds but do not provide insight into how demand shifts in response to wage changes. Similarly, the number of unemployed workers indicates labor market conditions but does not measure elasticity. Lastly, fixed wage rates in different industries pertain to wage structures without addressing how demand for labor may fluctuate based on wage changes. Thus, the correct understanding aligns with the concept of elasticity reflecting responsiveness in the labor market.