3.4.6

Question 1

What’s a monopsony?

Answer 1

A monopsony occurs when there is a sole or a dominant employer in a labour market.

Question 2

Name 2 cons of monopsonies

Answer 2

• Lower wages
• Increased wage inequality
• Workers lack bargaining power in getting improved working conditions.
• Reduced labour productivity due to lack of motivation and feeling of being valued.

Question 3

Name 2 pros of monopsonies

Answer 3

• The power to achieve economies of scale
• Control over the price and demand
  control over the market
• Allows to depress the prices and obtain big profits
• Costs saved on wages of employees.

Question 4

Draw a monopsony diagram

Answer 4

• Y axis as wage rate
• X axis as Quantity of labour
• Demand line as D = MRP
• Supply line as S=AC
• MC line above supply line as MC
• Equilibrium points
• Labels across axis

Page 107 in CGP book for reference