Cambridge International as and a level Economics Ebook

8.5
Go back and study the information in 
Table 8.1
and 
then answer the questions that follow.
1
Using a Lorenz curve, briefl y describe the 
diff erence in the distribution of income between
■
the Central African Republic and Sierra Leone
■
India and Pakistan.
2
For your own country, discuss the ways in which 
your government is seeking to reduce income 
inequalities.
Labour market forces and 
government intervention
When you leave school or college (hopefully with a CIE 
A Level in Economics), the wage or salary you get paid will 
be determined largely by what type of job you take. If you 
get a post as a clerk, you are likely to get more pay than if 
you are a street cleaner. Equally, if you go on to become a 
teacher, you will get paid more than a clerk. In turn, the 
manager of a multinational company will probably get 
paid more than a teacher. So why is it that some workers 
get paid more than others? Why is it that some people with 
exceptional talent – for example Lionel Messi, Roger Federer, 
Maria Sharapova, Madonna or Amitabh Bachchan – are so 
highly paid? Th
e answer to these questions, like many such 
questions in Economics, is that it all depends on supply and 
demand. To understand why some people get paid more 
than others, economists have looked at the labour market 
and have sought to put forward various principles based on 
the characteristics of this market.
Lionel Messi
Amitabh Bachchan
203
Chapter 8: Government microeconomic intervention

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Demand for and supply of labour
Demand for labour
Many of the principles introduced in 
Chapter 2
 can 
be applied to the labour market. However, there is one 
fundamentally diff erent point: the demand for labour is a 
derived demand
. By this, we mean that the fi rm’s demand 
for labour is due to its decision to produce certain goods 
or services. Labour is therefore demanded not for its own 
sake but because it is essential for the production of goods 
or services. If we go back to our earlier examples, clerks 
are employed because they are necessary for a fi rm to 
carry out its business. Th
e streets need cleaning, therefore 
street cleaners are employed. Children need education so 
teachers are required. Th
is may seem obvious but it does 
underpin the whole basis of labour economics. A small 
number of fi lm stars, rock idols and sports personalities 
have exceptional talents – the demand for their services 
is very high indeed and they can command a high fee for 
their services.