1. Some argue that a monopsony firm exploits its workers if it pays them a wage
ID: 1165040 • Letter: 1
Question
1. Some argue that a monopsony firm exploits its workers if it pays them a wage (greater than/ less than/ equal to) their marginal revenue product. Others disagree and argue that a monopsony firm only exploits its workers if it pays them a wage (greater than/ less than/ equal to) their (marginal physical product/ marginal factor cost/ opportunity cost of working at the firm) ; however, if this were the case, the workers would simply leave.
2. Which of the following forces may lead to a decrease in the monopsony power of a monopsonist in a labor market? Check all that apply.
A. The entry of one or more firms into the labor market
B. The existence of a labor union
C. A new law prohibiting the formation of unions and collective bargaining
D. A new law prohibiting new firms from hiring in this labor market
3. What is the “new view” of labor unions?
A. Unions cause a misallocation of labor; not all labor is employed where it is most valuable.
B. The economy will operate below its potential due to the existence of unions.
C. Unions provide a collective voice that reduces quit rates and leads to happier and more productive workers.
D. Unions drive an artificial wedge between the wages of comparable labor in the union and nonunion sectors of the economy.
E. None of the above.
4. Suppose that Spain has a Gini coefficient of 0.5, France has a Gini coefficient of 0.4, and Germany has a Gini coefficient of 0.3.
Based on this information, which of the following statements about income inequality in the three countries are correct? Check all that apply.
A. The lowest quintile of Spain's income distribution is poorer in absolute terms than the lowest quintile of Germany's income distribution.
B. The lowest quintile of France's income distribution earns a lower percentage of the aggregate French income than the lowest quintile of Germany's income distribution does of the aggregate German income.
C. Spain has a higher degree of income inequality than France or Germany.
D. France has a higher degree of income inequality than Spain but a lower degree than Germany.
E. The ratio of the total income of the lowest quintile of income distribution to the total income of the highest quintile of income distribution is higher in Spain than in France.
Explanation / Answer
1. Some argue that a monopsony firm exploits its workers if it pays them a wage less than their marginal revenue product. Others disagree and argue that a monopsony firm only exploits its workers if it pays them a wage less than their opportunity cost of working at the firm.
Explanation
Monopsony exploitation occurs if the wage is less than marginal revenue product. If however, the employee is paid lower than their opportunity cost of working in the firm, the employee will leave the job.
2. Option A and option B may lead to a decrease in the monopsony power of a monopsonist in a labour market.
Explanation
If a new employer enters the market, they may hire labourers at a higher wage. Then the existing employer will lose all the labourers.
similarly, due to unionization, the bargaining power of the labourers will increase and the final wage will be set up at the agreed wage rate.
3. (C) Unions provide a collective voice that reduces quit rates and leads to happier and more productive workers.
4. Higher the value of the Gini coefficient, higher will be the income inequality. Hence in terms of income inequality,
Spain> France> Germany
Spain has the higher level of income inequality compared to France and Germany.
gini coefficient is defined as the ratio or in percentage terms, but not in absolute terms.
Hence, option B and option C are correct.
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