Monopsony

Question 1

Explain how a monopsony can reduce the wages it pays its workers. (3 KAA marks)

Answer 1

A monopsony is when there’s only one buyer in the market (e.g. the NHS is the only buyer of doctors in the UK)

A monopsony can reduce the wages it pays its workers and the workers will have no choice but to accept, because they have nowhere else to work.

Question 2

A trade union is:

Answer 2

A trade union is a group of workers who collectively bargain to improve employee welfare.

Question 3

For a maximum wage to be effective, and actually decrease overpaid workers’ wages - the government needs to set it BELOW the equilibrium wage.

And so the wage is stuck at Wmax, which creates:

Answer 3

A maximum wage set BELOW equilibrium creates excess demand, or a shortage - the lower wage Wmax increases quantity demanded because workers are more cheaper to hire, but decreases the quantity supplied because big shot workers are less willing to work for these lower wages.

Question 4

So, occupational immobility is an example of labour market failure - and it leads to:

Answer 4

Structural unemployment

Question 5

So, in summary, occupational immobility is when:

Answer 5

Occupational immobility is when workers can’t move between different jobs (or occupations) because they lack the skills needed.

Question 6

So, in summary, geographical immobility is when:

Answer 6

Geographical immobility is when workers struggle to move between different areas.

Question 7

How does the gov’t intervene with geographical immobility

Answer 7

relocation subsidies

Question 8

Monopsony

Answer 8

A monopsony is when there’s only one dominant buyer in the market

E.g. the NHS is the only dominant buyer of doctors in the UK

Question 9

Minimum wage

Answer 9

A minimum wage is the lowest wage a firm can legally employ a worker for.

E.g. for over-25s in the UK, the national minimum wage is £7.50

Question 10

Trade union

Answer 10

A trade union is a group of workers who collectively bargain to improve employee welfare.

E.g. the NUT, the National Union of Teachers, who have previously gone on strikes to bargain for higher pay from the government.

Question 11

4. Maximum wage

Answer 11

A maximum wage is the highest wage a worker can legally be employed for.

E.g. Jeremy Corbyn has argued for a maximum wage set at 20x the lowest wage within a company

Question 12

5. Occupational immobility

Answer 12

Occupational immobility is when workers can’t move between different jobs (or occupations) because they lack the skills needed.

Question 13

6. Geographical immobility

Answer 13

Geographical immobility is when workers struggle to move between different areas.