Learning Path
Question & Answer1
Understand Question2
Review Options3
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Explore TopicChoose the Best Answer
A
The employer pays a wage above the equilibrium, attracting more labor and increasing efficiency.
B
The employer sets a lower wage than in competitive markets, leading to reduced labor supply and deadweight loss.
C
The employer's wage has no effect on labor supply since it is the same across all markets.
D
The employer increases wages to match productivity, eliminating market inefficiencies.
Understanding the Answer
Let's break down why this is correct
Answer
In a monopsony, there is only one employer for many workers, which gives that employer significant power over wage-setting. Because the employer can choose to pay lower wages than in a competitive market, this often leads to a situation where fewer workers are hired than would be in a more competitive environment. For example, if a company is the only one hiring in a town, it might offer lower wages because workers have no other job options, leading to a surplus of workers who want jobs but cannot find them. This wage-setting behavior reduces the overall market efficiency because it prevents resources (like labor) from being used to their fullest potential, resulting in a loss of economic welfare. Ultimately, the imbalance created by a monopsony can harm both workers and the economy as a whole.
Detailed Explanation
In a monopsony, the employer has more power over wages. Other options are incorrect because This answer suggests the employer pays more, which is not true in a monopsony; This answer thinks wages don't affect labor supply, but they do.
Key Concepts
Monopsonies
Labor Supply
Market Efficiency
Topic
Factor Markets and Monopsonies
Difficulty
hard level question
Cognitive Level
understand
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