A Level Economics AQA Practice Exam

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Prepare for the A Level Economics AQA Exam with our interactive quiz. Test your knowledge with multiple choice questions and detailed explanations. Equip yourself with the tools needed for success!

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What does it mean for a firm to be a wage maker?

To determine the market wage independently
To follow the market wage without deviation
To have a significant influence over wage rates due to market power
To set wages only for their own employees

The correct answer is: To have a significant influence over wage rates due to market power

A firm is described as a wage maker when it has the ability to influence wage rates within the labor market due to its market power, typically stemming from a degree of monopoly or oligopoly in its industry. This means that the firm can set wages at a level that suits its economic interests rather than merely accepting the prevailing market rate. In practical terms, this usually occurs in markets where the firm has specific characteristics, such as offering unique working conditions, specialized skills, or attracting talent that is scarce. As a wage maker, the firm can offer higher wages to attract and retain employees or adjust wages based on its demand for labor and ability to pay, making it an active participant in wage determination rather than a passive follower. This contrasts with firms following the market wage, which cannot influence the wage level due to a competitive labor market where many firms are present. The latter scenario limits a firm's ability to distinguish itself through compensation strategies. Therefore, the nature of being a wage maker revolves around control and impact on wage setting, rather than simply adhering to predetermined market conditions or setting wages only internally.