6.4 Imperfectly Competitive Labour Markets

Question 1

What is a monopsony?

Answer 1

There is only one buyer of labour in the market

Question 2

What is monopsony power?

Answer 2

The market power exercised by the buyer of a good or service of a factor of production such as labour even though the firm is not a pure monopsonist

Question 3

What is an example of a pure monopsony?

Answer 3

The armed service

Question 4

What needs to be in place for a monopsony to occur?(5 asp)

Answer 4

-sole employer in the labour market

-employer has buying power over potential employees

-wage-setting powers

-potential cause of market failure

-supply curve of labour=average cost of labour

Question 5

What 3 factors contribute towards imperfections in a labour market?

Answer 5

Monopsony power
Trade unions
Imperfect information

Question 6

Give one way how an imperfect labour market is similar to an imperfect goods market?

Answer 6

D=AR

(So In a monopolistic labour market the the supply curve of labour is the firms average cost of labour

Question 7

What does the average cost of labour curve show?

Answer 7

The different wage rates the monopsony must pay to attract labour forces of different sizes

Question 8

Diagram for a monopsony in the labour market ?

Answer 8

Question 9

Describe this diagram

Answer 9

-5 workers hired at an hourly wage of £1

-hourly wage must rise to £11 to attract a sixth worker

Question 10

Where does the marginal cost of labour curve lie in comparison to the a cost of labour of a monopsony?

Answer 10

Lies above it

Question 11

In a monopsony why is the average cost curve of labour not the same as the marginal cost of labour?.

Answer 11

To attract an extra worker the monopsony must raise the hourly wage rate a pay a higher wage to all workers

Question 12

What actually is the marginal cost of labour for a monopsony?

Answer 12

Change in total amount the wage bill rises by employing one extra worker

Question 13

Diagram die the determination of wage rate and the level of employment in a monopsony labour market?

Answer 13

Question 14

In a perfectly competitive labour market and an imperfect competitive labour market where is the equilibrium

Answer 14

Where MRP of labour=marginal cost of labour

Question 15

In a perfectly competitive labour market what point would be equilibrium

Answer 15

Point A

Question 16

Describe what happens when a monopsony charges W1 instead of W2(equilibrium)

Answer 16

Wage rate is lower than MRP, W1 attracts all the workers the monopsony needs to hire so why pay more?

-if they paid higher they would incur unnecessary production costs and fail to maximise profits

Question 17

What area represents wages lost ?

Answer 17

A,B,W1,W2

Question 18

What are the 5 reasons why wage differences in labour markets are often substantial?

Answer 18

-disequilibrium trading

-imperfect market information

-occupational immobility of labour

-geographical immobility of labour

-discrimination

Question 19

Why is disequilibrium trading a reason for substantial wage differences in labour markets?

Answer 19

-economies are always changing as does patterns of demand

-because these conditions are always changing labour markets are usually in disequilibrium than equilibrium

Market forces try to equalise this but it still occurs

Question 20

Why is imperfect market information a reason for substantial wage differences in labour markets?

Answer 20

Sometimes workers lack information on rates of pay and employers can lack information about wage rates in other markets

-contributes to the immobility of labour

Question 21

What is the occupational immobility of labour?

Answer 21

When workers are unwilling or unable to move from one type of Jon to another (e.g because of different skills being needed)

Question 22

What is geographical immobility of labour?

Answer 22

When workers are unable or unwilling to move from one area to another in search of work

Question 23

Why is occupational immobility of labour a reason for substantial wage differences in labour markets?

Answer 23

Artificial barriers stop workers moving from labour markets (leg required qualifications)

Question 24

Why is discrimination a reason for substantial wage differences in labour markets?

Answer 24

Various forms racial religious age and gender affect both the demand and supply of labour (employers may be unwilling to employ certain types of labour)(on demand side some workers may be unwilling to work with people they perceive as being different

Question 25

Why is geographical immobility of labour a reason for substantial wage differences in labour markets?

Answer 25

-housing prices
-families and job opportunities prevent people from moving geographically to move to another labour market