Monopsony in labour markets

Question 1

Monopsony power-Buyer

Answer 1

A market condition where there is only one dominant buyer for a particular good or service. The buyer has significant control over the price and the term of the purchase due to lack of competition among buyers.

Question 2

Monopsony power-Employer

Answer 2

A situation where there is only one major employer in a labor market. The employer has significant control and can pay lower wages than in competitive labor markets as workers have limited alternatives and are essentially forced to accept the lower wages.

Question 3

Monopsony power supply and demand analysis

Answer 3

-Profit maximizing employment level is where MCL=MRPL (Marginal cost of extra labor=Labor demand)
-Monopsony employer can use their buying power to pay a wage lower than the competitive value

Question 4

What monopsony power characteristics can cause labor market failure?

Answer 4

-Lower wages
-Reduced employment
-Diminished job quality
-Economic inequality

Question 5

Lower wages

Answer 5

In a monopsony, the employer can set wages below the competitive equilibrium level because they are the primary buyers of labor. This can result in lower wages for workers, and so underpayment and reduced standard of living.

Question 6

Reduced employment

Answer 6

Monopsonistic employers may also choose to hire less workers than they would in a competitive labor market. This can result in higher levels of unemployment or underemployment.

Question 7

Diminished job quality

Answer 7

Monopsonistic employers may provide suboptimal working conditions, fewer benefits and less job security. This can negatively impact the well being and job satisfaction of workers.

Question 8

Economic inequality

Answer 8

Monopsony power can make income inequality worse as it concentrates bargaining power with employers, leaving workers with less ability to negotiate for higher wages. This can lead to increased working poverty and welfare claims.