Wage Determination In Monopsony Labour Markets

Question 1

What is a Monopsony?

Answer 1

Where there is only one major buyer or employer in a labour
market.

e.g. NHS, Armed Forces, local governments.

The monopsonist could use its market power to pay lower wages because workers have limited alternatives

Question 2

How can Monopsony lead to Labour Market Failure?

Answer 2

• Lower Wages
- Underpayment and a reduced standard of living for
employees.

• Reduced Employment
- Could lead to higher levels of unemployment or underemployment

• Diminished Job Quality
- Monopsonistic employers may provide suboptimal working conditions, fewer benefits, and less job security, negatively impacting the well-being and job satisfaction of workers.

• Economic Inequality
- Monopsony power can exacerbate income inequality as it concentrates bargaining power with employers increasing working
poverty and welfare claims to the state

Question 3

Profit maximising employment level is where ___ = ___

Answer 3

MCL = MRP