A small town has only one major employer who hires most of the local workforce, setting wages lower than the competitive market rate. This scenario exemplifies which of the following categories in factor markets?

This scenario is an example of a monopsony in factor markets. A monopsony occurs when there is only one major buyer of labor, in this case, the single employer in the town. Because this employer has no competition for hiring workers, they can set wages lower than what workers might earn elsewhere, which is called the competitive market rate. For instance, if the average wage for a similar job in nearby towns is $15 per hour, but the employer only pays $12, workers have limited options and must accept the lower wage. This situation illustrates how a monopsony can impact the income of workers in a local economy.