📚 Learning Guide
Factor Markets and Monopsonies
hard

In a monopsony market, how does the bargaining power of the buyer affect the supply curve of the labor market?

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Choose the Best Answer

A

It shifts the supply curve to the right, increasing wages.

B

It leads to a higher equilibrium price for labor.

C

It can decrease wages due to the buyer's increased bargaining power.

D

It has no effect on the supply curve.

Understanding the Answer

Let's break down why this is correct

Answer

In a monopsony market, there is only one buyer for labor, which means that this buyer has a lot of power over wages and employment conditions. Because the monopsonist can set lower wages, the supply curve of the labor market is affected; it tends to shift to the left. This happens because workers may not be willing to supply their labor at the lower wage offered by the monopsonist, leading to fewer workers in the market. For example, if a single factory in a town is the only employer and it pays lower wages than what workers expect, many may choose not to work there or may look for jobs elsewhere. Therefore, the monopsonist's strong bargaining power can lead to a reduced supply of labor in that market.

Detailed Explanation

In a monopsony, the buyer has a lot of power. Other options are incorrect because Some might think that more buyer power means higher wages; It's a common mistake to think that more buyer power raises prices.

Key Concepts

supply and demand
bargaining power
market structures
Topic

Factor Markets and Monopsonies

Difficulty

hard level question

Cognitive Level

understand

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