monopsony

Question 1

Characteristics

Answer 1

-One single buyer
-Price maker
-Many sellers
-Limited substitute buyers

Question 2

Costs of monopsony

Answer 2

-Firms lose profits as buyers negotiate lower prices - supermarkets and farmers - pressure to accept lower wages

-Lower wages for employees - coal miners
-Their labour is exploited - however presence of trade unions can prevent this - worse working conditions

-Unproductive if wage is low

Question 3

Benefits of monopsony power

Answer 3

-Suppliers can benefit from the stability and reliability of a consistent buyer

-NHS has monopsony power when buying drugs from pharamceutical companies - negotiate lower prices - cover more treatment - saved money used for R+D

-Consumers may benefit from lower prices due to lower input costs