Monopsony Flashcards
What is a monopsony?
A market structure in which there is only one buyer.
What are the 3 characteristics of a monopsony?
1) There is only one buyer.
2) Monopsonists are profit maximisers, paying lower prices to suppliers compared to what they would have in a competitive market.
3) Exist in both product and labour markets. Whilst not pure monopsony, the NHS is the largest employer (buyer) of doctors in the UK.
How does price and quantity supplied differ in a monopsony, compared to a competitive market?
Under a monopsony, both price and quantity supplied is lower than what would exist if the market was competitive.
What is a benefit of having monopsony power to firms?
Lower costs, as firms are able to buy at lower prices, shifting the MC curve downwards.
What is a benefit of monopsony to consumers?
Lower prices.
What is a benefit of monopsony to employees?
By reducing the cost of production, e.g. raw materials, the firm has greater funds for wages.
What are 2 drawbacks of monopsony to firms?
1) Potential poor relations with suppliers.
2) Suppliers may be encouraged to find other buyers.
What is a benefit of monopsony to suppliers?
When the supplier has monopolist power, it can counteract the monopsonist buyer.
What is a drawback of monopsony to consumers?
The supplier may have to cut down on quality in order to remain profitable.
What is a drawback of monopsony to employees?
Monopsonists employ fewer workers than under competitive conditions.
What is a drawback of monopsony to suppliers?
The monopsonist may exploit the supplier for lower prices, reducing the supplier’s income.
