monopsony Flashcards
monopsony definition
one dominate buyer in the market allowing them to set lower wages leading employees/workers in this market with no choice
eg nhs - domina
eg purchasing economies of scale -
give examples of monopsony in labour markets
firm has some level of monopsony power to control the price and wage it pays
eg nhs can control wages it pays its doctor
or the government can control the wages it pays teachers
all these firms are dominate buyers and means workers have trouble finding other places to work
give examples of monopsony outside labour market ps in goods market
railway tracks is dominated by one buyer- network rail
purchasing economies of scale bigger firms can negotiate lower prices
or when supermarkets collude together to act like a monopsony and offer farmers low prices for their food
how do low wages positively impact monopsonys
lower wages/prices lead to reduce costs allowing these firms to maximise profits
monopsony diagram
what is the demand curve
the demand curve is the mrp curve
what is the supply curve
the supply curve tells us what wage we have to pay to get a certain number of workers to supply their labour and work for us
therefore telling us the average cost of labour
what is the additional upwards sloping curve - not ac-
the marginal cost of labour is the cost of hiring one additional worker
the mc of l curve is twice as steep as the ac curve
what is our monopsony objective
our monopsony is profit max where mrp=mc
where does monopsonist do for diagram,
go to where mrp=mc
down to supply curve for wage rate
monopsony v perfect competitive market
in a perfectly competitive labour market, there are lots of employers. The equilibrium quantity occurs where supply or demand equals demand or supply
if you extend the wage from the perfectly competitive labour market across to the monopsony labour market, you can see that the wage in perfect competition is higher than it is monopsony. this makes a lot of sense- if an employer has to compete with lots of other employers to attract labour, they will have to set a higher wage. If there is only one employer in the labour market (monopsony), they don’t have to compete with other employers to attract labour and so they pay a lower wage and hire fewer workers. This means that employment and wages are both lower in a monopsony labour marker
national minimum wages
wages are set above the equilibrium which as an unintended consequence creates unemployment due to excess supply of labour and a disequilibrium meaning quantity of labour supplied decreases
but it can’t go back to equilibrium
trade unions
trade unions are a group of workers who collectively bargain to improve employee welfare
eg nut national union of teachers bargains for a higher wage
national maximum wage
this is the highest wage employees can hire work price will be set below the equilibrium unfortunately creating excess demand/shortage because workers are less willing to work with the market being stuck in a disequilibrium
but this reduces inequality
occupational immobility + gov intervening
workers can’t move between different jobs because they lack the skills needed
this leads to structural unemployment: when unemployment is caused by a shift in industry eg uk shifting from manual labour to services
labour market failure
so the government intervenes with things like apprenticeship schemes education, training
so that workers can have new skills for new sectors
geographical immobility - labour market failure
workers are geographically immobile - they can’t move to fill new jobs meaning they are unemployed - labour market fsilour resources (labour) aren’t being used
but the government can intervene through providing transport means
