A local factory is the only employer in a small town, setting wages below the competitive market level while still attracting enough workers. How does this scenario exemplify a monopsony, and what category does it fit into based on its effects on labor market efficiency?

A monopsony occurs when there is only one buyer in a market, and in this case, the factory is the sole employer in the town. Because it is the only place for workers to find jobs, the factory can set wages lower than what would be expected in a competitive market while still attracting employees. This means that workers have limited choices, which gives the factory more power over wage levels. As a result, this scenario leads to inefficiencies in the labor market, as workers are paid less than their true value, and the overall welfare of the town may decrease. For example, if the factory pays $10 an hour instead of the competitive rate of $15, workers miss out on potential earnings that could have improved their quality of life.