How, in a monopsony labour market, the employer can use market power to reduce both the relative wage rate and the level of employment below those that would exist in a perfectly competitive labour market
A monopsony is a market with only one dominant employer. That employer uses its buying power to pay workers less and hire fewer people than a competitive market would.
Formula
Monopsony Wage: W_m < MRP; Employment: Q_m < Q_competitive
Real World
Before NHS pay reforms, nurses in many rural English counties had virtually one employer — the local NHS Trust — allowing it to hold wages below what a competitive market would have paid.
Exam Focus
On diagram questions, clearly mark W_competitive, W_monopsony, Q_competitive, and Q_monopsony — examiners award marks for each correctly identified point.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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