What is a monopsony and why is a monopsony able to pay a lower wage rate than a firm in a competitive labor market?
What will be an ideal response?
A monopsony is a market with a single buyer. A monopsony uses its market power to force down the price it pays for what it buys in a similar way to how a monopoly uses its market power to force upward the price of the good it sells. Compared to a competitive labor market, a monopsony in a labor market hires fewer workers. Because it hires fewer workers, it pays a lower wage rate.
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Refer to the diagram. Flow 1 represents:
A. wage, rent, interest, and profit income.
B. land, labor, capital, and entrepreneurial ability.
C. goods and services.
D. consumer expenditures.
Which of the following statements is true about individuals and utility?
A. Individuals seek to maximize utility. B. Individuals seek to maximize their income, not utility. C. Individuals will either minimize or maximize utility depending on the situation. D. Individuals rarely try to maximize their utility.