Monopsony

• How does the NHS get away with paying highly educated, highly skilled junior doctors just £12/hour?

  The NHS controls over 90% of the UK healthcare market! The NHS is pretty much the only place you can get a job as a doctor.Which means the NHS can force down wages to as little as £12/hour - it knows the junior doctors will have no choice but to accept, otherwise they’ll go unemployed.
• what is a monopsony?

  only one buyer in the market and so have control over price/wage
• How can oligopolies act as a monopsony?

  The firms can collude together to act as monopsony
• How do lower wages and prices benefit monopsonies?

  It helps them reduce costs and maximise profits
• what does the labour supply curve show?

  the wage you pay your labourers - the average cost of labour
• what is the marginal cost of labour?

  cost of hiring one additional worker
• Describe the marginal cost of labour curve


  upwards sloping and twice as steep as the average cost of labour (supply)

  
• Where does the monopsony profit maximise?

  where marginal cost of labour = marginal revenue product (demand).

  If the MCL is less than the M⁢R⁢P, the firm is making a profit from each extra worker and so it makes sense to hire more workers.If the MCL is more than the M⁢R⁢P, the firm is making a loss from each extra worker and so it makes sense to hire fewer workers.

  
• When finding the profit maximising wage for a monopsony what do you do?

   To find the profit maximising wage, go from the profit maximising quantity up to the supply curve.
• why is employment and wages lower in a monopsony than in perfect competition?

  If you extend the wage from the perfectly competitive labour market across to the monopsony labour market, you can see that the wage in perfect competition is higher than it is in monopsony. if an employer has to compete with lots of other employers to attract labour, they will have to set a higher wage. If there is only one employer in the labour market (monopsony), they don’t have to compete with other employers to attract labour and so they pay a lower wage and hire fewer workers. This means that employment and wages are both lower in a monopsony labour market.

  
• what is a perfectly competitive labour market?

  A labour market with lots of employers and employees, no barriers to entry and identical workers.
• Explain how a monopsony can reduce the wages it pays its workers.

  A monopsony is when there’s only one buyer in the market (e.g. the NHS is the only buyer of doctors in the UK)A monopsony can reduce the wages it pays its workers and the workers will have no choice but to accept, because they have nowhere else to work.
• How do governments intervene with monopsonies setting very low wages?

  a national minimum wage above the equilibrium wage
• what does a national min wage create?

  excess supply or real wage unemployment
• How do you show the NMW on a diagram?

  NMW

  
• What are trade unions?

  group of workers who collectively bargain to improve employee welfare. a national min wage can't do this.
• give an example of a trade union

  the BMA and 150000 medics asked to have better pay and weekends off
• What was the NMW in the UK Nov 2022 for 18-20 year olds?

  £6.83 and went up to £7.49 in April 2023.
• who does the national living wage apply to?

  those who are 23 and above
• what is one example of a union?

  the National Union of Teachers (NUT) which represents many teachers in the UK and argues for higher pay and better working conditions on their behalf.
• How do you show the effect of an NMW on a monopsony diagram?

  this is the same for trade union where NMW is replaced with WTu. nmw is determined by where supply = demand

  
• what does a maximum price create?

  set below equilibrium price so creates disequilbrium and excess demand/shortage of workers. Quantity demanded increases as workers are cheaper but quantity supplied is lower as workers are disincentivised by lower wages
• what is occupational immobility?

  workers can't move between different jobs because they lack the skills needed
• what can occupational immobility lead to?

  labour market failure - if workers do not have the required skills then they become unemployed. Labour is a resource being used inefficiently.
• what type of unemployment does occupational immobility lead to?

  structural unemployment - e.g in the 1980s in the UK when deindustrialisation occured when the economy shifted to a manufacturing to service based country away from coal mines
• How can the government correct occupational immobility?

  education, training and apprenticeships
• what is geographical immobility?

  workers struggle to move between different areas?
• what type of market failure does geographical immobility cause?

  labour market failure because labour is allocated inefficiently even if they are occupationally mobile
• what are the reasons for geographical immobility?

  family ties, expensive and time consuming to commute or bad commute links
• How does the government improve geographical immobility?

  improving transport e.g HS2 train service (cross railway) connects many motorways at a lower price

  relocation subsidies - cover the cost of moving