A Level Economics AQA Practice Exam

Which of the following is true about a perfectly competitive labor market?

1. Firms are few and large

2. Wages paid can vary significantly

3. Workers are considered wage takers

4. Workers possess unique skills

The correct answer is: Workers are considered wage takers

In a perfectly competitive labor market, workers are indeed considered wage takers. This means that individual workers have no influence over the wage rate; instead, they accept the prevailing market wage that is determined by the overall supply and demand for labor. In such a market, there are many employers and workers, and due to the homogeneity of labor (i.e., workers are linked primarily by the type of labor they provide rather than by unique skills), no single worker or employer has enough market power to affect the wage level. The competitive nature of this market ensures that if a worker attempts to demand a higher wage, employers will simply hire another worker willing to accept the market wage, reinforcing the idea that workers must accept the going rate. This characteristic strengthens the understanding of labor market dynamics and the role of supply and demand in determining real wage levels. In contrast, scenarios where firms are few and large would lead to different market structures, such as oligopoly or monopoly power, which would not be reflective of perfect competition. Similarly, significant wage variation or the possession of unique skills are not features of a perfectly competitive labor market, as these conditions could create wage discrimination or bargaining power for workers. In this context, the clarity of wage determination as a competitive outcome