All Flashcards
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 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.