3.4.6 Monopsony Flashcards
Evaluation of raising minimum wage
E.g 2022-2023 went from 9.50-10.42.
Firms might not be able to pay all workers this = drop workers = create unwanted unemployment = govt failure
Low wage =short term profit, lowly valued workers = low spending
High wage = long term profit, highly valued workers
Karl marx = all value comes from low wages
Monopsony
- exists when there is one buyer in the market
- examples: network rail, government dominates the market for hiring teachers
Aims of monopsonists
- profit maximisers (they aim to minimise costs by paying suppliers the lowest possible price)
- Monopsonists will pay lower prices to suppliers than if the market was competitive but suppliers will also supply less to the market.
Costs of monopsony to firms
The relationship with the supplier may worsen, the monopsonist may drive their supplier out of business.
Benefits of monopsony to firms
Lower costs – cost minimisation supports firms in making more profits.
Costs of monopsony to consumers
The supplier may have to cut corners or lower quality to lower its costs to remain profitable.
Benefits of monopsony to consumers
Lower prices – the monopsonist pays the minimum it can.
Costs of monopsony to employees
May question the ethics of the way their firm is acting.
Benefits of monopsony to employees
In minimising costs of raw materials it leaves more funds to pay its staff.
Costs of monopsony to suppliers
The buyer minimises costs leading to a reduced price paid to the supplier. The monopsonist may exploit its market power by paying less or later. Suppliers may be driven out of the market due to lower profitability.
Benefits of monopsony to suppliers
When the supplier has market power as a monopolist it can counteract the monopsonist.
What do Keynesian economies argue about minimum wage?
- increase in age = increase consumer spending, AD = real growth in UK
