All Flashcards
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.
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.
What is the effect of a minimum wage set below the monopsony wage?
No effect. The monopsony will continue to pay its original wage.
How does a minimum wage impact efficiency in a monopsony market?
A minimum wage can increase efficiency if it moves employment closer to the competitive level, but can decrease it if it reduces employment further.
How does a minimum wage affect worker surplus?
Worker surplus may increase or decrease depending on the specific values of the minimum wage, original wage, and employment levels.
What is the impact of a minimum wage on the wage rate?
Wage rate increases to the minimum wage.
What is the impact of a minimum wage on the number of nurses employed?
The number of nurses employed decreases.
How does a minimum wage affect the marginal revenue product?
The marginal revenue product decreases.
What is the impact of a minimum wage on deadweight loss?
The minimum wage causes a reduction in employment below the socially optimal level, leading to a deadweight loss.
How does a minimum wage affect the socially optimal level of employment?
The minimum wage causes a reduction in employment below the socially optimal level.
Is the minimum wage of $12 efficient?
The minimum wage of $12 is not efficient. While it increases wages, it also decreases employment, leading to a deadweight loss.
How does a minimum wage affect the marginal resource cost?
The new MRC becomes horizontal at the minimum wage until it intersects with the original MRC curve.