A Monopsony is where there is one dominant employer with many employees in the market.
Monopsony have wage setting power which means that the supply and demand of labour does
not have an effect on how much employees get paid. For example the NHS is a monopsony as
they are the dominant employer in the health market. This means that doctors and nurses have
little option to work for any other
companies other than the NHS. This grants
the monopsony wage setting power and
allows them to drive down wages for doctors
and nurses. This can be shown on the
diagram as they operate at MCL=MRP
because they want to maximise MRP and
minimise their marginal cost to
maximise profit. This means that they have
wage setting power so they will pay wages
at Wm and at quantity Qm. However the trade unions in this market will see that workers are
being exploited. Through this workers will collectively join together and demand for higher
wages or strike. Through collective bargaining they force monopsonies to increase their wages
from E1 to E at the market equilibrium, as monopsonies cannot afford to lose the revenue which
labour provides from the. Therefore wages rise from Wm to Wtu solving labour market failure.
Monopsony have wage setting power which means that the supply and demand of labour does
not have an effect on how much employees get paid. For example the NHS is a monopsony as
they are the dominant employer in the health market. This means that doctors and nurses have
little option to work for any other
companies other than the NHS. This grants
the monopsony wage setting power and
allows them to drive down wages for doctors
and nurses. This can be shown on the
diagram as they operate at MCL=MRP
because they want to maximise MRP and
minimise their marginal cost to
maximise profit. This means that they have
wage setting power so they will pay wages
at Wm and at quantity Qm. However the trade unions in this market will see that workers are
being exploited. Through this workers will collectively join together and demand for higher
wages or strike. Through collective bargaining they force monopsonies to increase their wages
from E1 to E at the market equilibrium, as monopsonies cannot afford to lose the revenue which
labour provides from the. Therefore wages rise from Wm to Wtu solving labour market failure.
