Explain the factors which determine the elasticity of demand for labour and discuss the importance of the elasticity of demand for labour in relation to the effectiveness of a government's minimum wage policy.

Explain the factors which determine the elasticity of demand for labour and discuss the importance of the elasticity of demand for labour in relation to the effectiveness of a government's minimum wage policy.
Responses should identify and explain some key factors which might determine the elasticity of demand for labour. Candidates might refer to: the proportion of labour costs in relation to a firm's total cost; the ease with which labour can be substituted by capital; the elasticity of the demand for the product produced; the time period under consideration.
An attempt should then be made to link these factors in relation to a government's minimum wage policy. For example, labour operating in a monopolistically competitive market is likely to be producing a product which has an elastic demand. This means that if the imposition of a minimum wage leads to higher prices, there will be a significant decrease in the demand for the product and subsequently, a significant rise in unemployment. This suggests that a government minimum wage policy will have a substantially negative effect on the labour market.

A similar approach might be adopted in relation to other factors referred to above. A conclusion should comment that the effectiveness of policy will depend upon the factor under consideration but also other factors should be taken into account, for example, the elasticity of supply of labour.
L4 (9-12 marks): For a clear explanation and analysis of at least two factors which might determine the elasticity of the demand for labour. The link between each factor and the subsequent effectiveness of a government's minimum wage policy should be clearly established and the effectiveness of the policy in each case should be discussed. Effectiveness would be primarily determined by the trade-off between the benefit of higher wages and the loss of jobs. A conclusion based on the preceding discussion should be made.

L3 (7-8 marks): For a fair but undeveloped analysis perhaps concentrating on two factors but not fully linking the factors to the effectiveness of a government's minimum wage policy. Evaluative comment which directly addresses the specific question will not be provided.
L2 (5-6 marks): For a more descriptive explanation that explains some key determinants of the elasticity of demand for labour but does not analyse the links between these factors and a government's minimum wage policy and does not attempt to discuss the effectiveness of this policy.
L1 (1-4 marks): For an answer that has some basic correct facts but includes irrelevancies and errors of theory.