1. In the real world, what are some of the signs that are indicative that the la
ID: 1118424 • Letter: 1
Question
1. In the real world, what are some of the signs that are indicative that the labour market might be characterized by a monopsony?
a. low wages
b. high unemployment
c. unfilled vacancies and recurrent labour shortages
d. labour markets in which the employers are diffused
2. The empirical literature on monopsony has found:
a. There is evidence of monopsony power in certain labour markets.
b. Although one might expect to see monopsony power in markets for nurses and teachers, studies have failed to find this effect.
c. Where it exists, monopsony power seems to endure over the long run.
d. It appears as though many labour markets are affected by monopsony power.
3. Within the framework of competitive labour markets, what is the expected effect of the minimum wage?
a. to make the workers better off
b. to reduce employment below the level that would otherwise exist
c. to shift the demand for low-skilled workers to the left (a fall)
d. to cause a shortage of workers at the going transactions wage
4. Consider figure 7.9, which depicts the situation of a monopsonistic firm. A minimum wage of W1 is imposed by the government on this firm. The equilibrium employment level is:
a. the same as it would be if the labour market were perfectly competitive
b. N1, which is greater than the level of employment that would prevail if the firm were a monopsonist
c. N0
d. at the intersection of the minimum wage W1 and the marginal cost of labour curve
5. Empirical evidence on the practical importance of minimum wage laws suggests:
a. that they do reduce the employment levels of younger and unskilled workers to a minor extent - a weak disemployment effect.
b. that they do reduce the employment levels of younger and unskilled workers to a major extent - a strong disemployment effect.
c. that their impact on the employment level is nil.
d. that their impact on employment is actually favourable because they put more money in the hands of poorly paid workers, stimulating consumer spending, thus promoting economic growth.
Explanation / Answer
1> a. low wages
Reason
In the case of the labour market, a monopsony employer will tend to pay relatively lower wages and employ fewer people than in a highly competitive labour market.
2> c. Where it exists, monopsony power seems to endure over the long run.
Reason
Monopsony persists and it is so because of the incentive t
3> b. to reduce employment below the level that would otherwise exist
Minimum wage incentivizes firms to keep low level of workers.
4> Figure is missing
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