All Flashcards
What is the definition of a monopsony?
A market with only one buyer for a resource (e.g., labor) and many sellers.
Define Marginal Resource Cost (MRC).
The cost of hiring one additional unit of a resource (e.g., labor). In a monopsony, MRC > Supply.
What is Marginal Revenue Product (MRP)?
The additional revenue generated by employing one more unit of a resource (e.g., labor).
What does it mean to be a 'wage maker' in a labor market?
A firm that has the power to set the wage rate, rather than accepting the market wage.
Define worker exploitation in a monopsony.
Paying workers less than their marginal revenue product (MRP) due to the firm's market power.
What is the hiring rule for a monopsony?
Hire labor up to the point where Marginal Revenue Product (MRP) = Marginal Resource Cost (MRC).
What is the relationship between the supply curve and the MRC curve in a monopsony?
The Marginal Resource Cost (MRC) is greater than the supply curve (willingness to sell).
What is the shape of the demand curve in a monopsony?
The demand curve slopes downwards due to the law of diminishing marginal returns.
What is the shape of the supply curve in a monopsony?
The labor supply curve slopes upwards.
Define a price floor.
A minimum price set by the government that is above the equilibrium price.
How does a monopsony exploit its market power?
By hiring fewer workers and paying them a lower wage than in a competitive market.
Why is MRC > Supply in a monopsony?
To hire another worker, the firm must increase the wage for all workers, not just the new one.
How does a minimum wage impact employment in a monopsony?
It depends on the level of the minimum wage. It can increase employment if set correctly, but decrease it if set too high.
How does a monopsony choose the wage rate?
It finds the quantity of labor where MRP = MRC, then finds the corresponding wage on the supply curve.
How does a minimum wage affect the MRC curve?
The MRC becomes horizontal at the minimum wage until it intersects with the original MRC curve.
How does the single large firm affect the wage rate?
The single large firm has the power to lower the wage rate.
How does the minimum wage affect the quantity of labor hired?
The new quantity hired is where the new MRC intersects with MRP.
How does a monopsony maximize their profit?
Firms hire labor up to the point where Marginal Revenue Product (MRP) = MRC.
How does the lack of competition affect wages?
The lack of competition creates a market where workers get paid less than their MRP because of the firm's market power.
How does a monopsony act as a wage maker?
The monopsony firm sets the wage, aiming for the lowest possible rate workers will accept.
What are the key differences between a monopsony and a perfectly competitive labor market?
Monopsony: One firm, wage maker, wage below MRP, MRC > Supply, lower employment. Perfectly Competitive: Many firms, wage taker, wage equals MRP, MRC = Supply, higher employment.
How does the wage rate differ between a monopsony and a perfectly competitive labor market?
Monopsony: Wage rate is below MRP. Perfectly Competitive: Wage rate is equal to MRP.
How does the number of firms differ between a monopsony and a perfectly competitive labor market?
Monopsony: One firm. Perfectly Competitive: Many firms.
How does the level of employment differ between a monopsony and a perfectly competitive labor market?
Monopsony: Lower level of employment. Perfectly Competitive: Higher level of employment.
Is there worker exploitation in a perfectly competitive labor market?
No, there is no worker exploitation in a perfectly competitive labor market.
How does wage control differ between a perfectly competitive labor market and a monopsony?
Perfectly Competitive Labor Market: Wage Taker. Monopsony: Wage Maker.
How is the wage rate determined in a perfectly competitive labor market?
Market Determined.
What is the relationship between MRC and Supply in a perfectly competitive labor market?
MRC = Supply.
How does the wage rate and level of employment compare between a perfectly competitive labor market and a monopsony?
Perfectly competitive labor market: Higher wage rate and a higher level of employment. Monopsony: A lower wage rate and a lower level of employment.
How does the number of firms affect the wage rate?
Many firms: Higher wage rate. One firm: Lower wage rate.