Labour Markets Flashcards
Monopsony/Monopsonist meaning
A single dominant source of demand. Tends to be govt (police officers, nurses etc.)
Diagram of monopsonist market ONLY.
In a monopsonist market, all workers are paid the same. This means that if a pay rise is given, everyone will receive a pay rise. If the monopsonist wishes to hire more workers it has to increase the w/r for everyone reason why SOL=ACL.
If left to the free market, in a perfectly competitive market the equilibrium would be SOL=MDP (W/R FM = QFM). The monopsonist uses its market power as a price maker, to benefit itself. They therefore equate MCL=MRP to hire workers at QM and W/RM. This means the monopsonist will hire less workers then the free market would and will pay workers less then the free market. This is why class sizes are so big and NHS waiting lists are so high, because they are underfunded by the govt.
Monopsony vs monopsonist/bilateral monopoly/govt vs TU
The monopsonist initially hires at QM=W/RM. A TU is formed who wishes to raise W/R to W/R TU. They agree and now w/r is raised from W/R M to W/R N, causing an expansion of number of workers hired from Qm to Qn. If however the monopsonist wants to hire more workers after QN it must pay everyone higher wages. The MCL was constant when ACL was constant. However if the ACL increases, the MCL increases HUGELY. This means that after QN, the MCL curve suddenly jumps back to the original MCL curve. Therefore, the TU power is most effective against monopolistic power as it increases both w/r and hiring of workers.
