3.4.6

Question 1

What is a monopsony

Answer 1

A single buyer in a market

Question 2

Characteristics and condition for monopsony to operate

Answer 2

Assumed that monopsonits are profit maximisers
A firm with monopsony power is able to negotiate lower prices, because their suppliers have nowhere else to sell
Firms with monopsony power are able to set the market price

Question 3

Costs of monopsony to firms, consumers,employees and suppliers

Answer 3

• it is the monopsony power of supermarkets that has led to many farmers losing profits
  -farmers lose out to supermarket price wars, because supermarkets keep negotiating lower prices from farmers, in order to lower their own prices and compete with other supermarkets
  Supplying firms are unlikely to make more than normal profit
• employees are likely to lose out to lower wages
• workers might become unproductive if wages are low

Question 4

Benefits of monopsony to firms, consumers, employees and suppliers

Answer 4

• the NHS has monopsony power when buying drugs from pharmaceutical companies
  NHS cab cover more treatments writhing their budget
• by lowering the price paid to suppliers, consumers might receive lower prices