4.1.6.4 Wage determination and employment in imperfectly competitive labour markets Quiz: AQA Economics, Unit 1

The 20 questions

1. In a monopsony labour market, the employer:

   • Is a wage taker facing a perfectly elastic labour supply, so it can hire any number of workers at the market wage without affecting it
   • Faces a perfectly inelastic labour supply at all wages, which means that the number of workers available is fixed whatever it pays
   • Is the single buyer of labour and faces an upward-sloping labour supply curve
   • Has no influence over the wage paid to workers, since the wage is set by the government for every employer in the labour market

2. A monopsonist reduces employment below the competitive level because:

   • The MRP of labour rises as more workers are hired
   • The marginal cost of labour exceeds the wage, so it hires fewer workers to maximise profit
   • The wage rises above the MRP of the last worker
   • Labour supply is perfectly elastic at the competitive wage

3. In a monopsony, the wage paid is:

   • Above the marginal revenue product of labour
   • Equal to the average product of labour at all employment levels
   • Equal to the marginal revenue product of labour in all cases
   • Below the marginal revenue product of labour

4. A monopsonist faces labour supply W = 4 + 0.5L and marginal revenue product MRP = 20 - L. What wage and employment maximise its profit?

   • 8 workers at a wage of 8
   • 16 workers at a wage of 12
   • 12 workers at a wage of 10
   • 8 workers at a wage of 12

5. A monopsonist pays a wage of £6 while its workers' MRP is £9. Monopsony power means each worker is paid:

   • £3 less than the value of their marginal product
   • £3 more than the value of their marginal product
   • £9 less than the value of their marginal product
   • £6 more than the value of their marginal product

6. Imperfect information in labour markets can contribute to:

   • Perfectly competitive wages across all firms, because when workers have information about all jobs
   • Workers accepting lower wages because they do not know about alternative jobs
   • Firms paying more than MRP to all workers
   • Workers always moving to the highest-paying job immediately

7. Trade unions, monopsony power and imperfect information all contribute to:

   • Imperfections in the labour market that cause wages and employment to differ from competitive levels
   • Full employment in every labour market at all times
   • A competitive wage equal to MRP in every firm, because monopsony power
   • Perfect mobility of labour between all occupations

8. A town has few employers, and local workers have limited transport to other areas. This best illustrates:

   • Perfect competition, since many firms exist across the region
   • Monopsony power, since the few employers can pay lower wages because workers cannot easily switch jobs
   • Dynamic efficiency in the labour market, because the employers in the town invest heavily in training and new technology every year
   • Monopoly in the product market, since employers sell a single product that is sold to buyers across the whole region at a set price

9. Why does a monopsonist's marginal cost of labour exceed the wage?

   • Hiring an extra worker raises the wage paid to all existing workers, not just the new one
   • Labour costs include only the wage of the last worker hired
   • The monopsonist must pay a fixed fee to government for each worker it hires
   • The wage paid to a new worker is always lower than the existing wage

10. Which statement best describes employment and wages under monopsony compared with perfect competition?

    • Both employment and the wage are higher under monopsony
    • Both employment and the wage are lower under monopsony
    • Employment is higher but the wage is lower under monopsony
    • The wage is higher but employment is lower under monopsony

11. A monopsony labour market is best defined as:

    • A market in which there is a single buyer of labour
    • A market in which firms collude over wages
    • A market in which there is a single seller of labour, the trade union
    • A market with many buyers and sellers of labour and no barriers

12. Trade unions are said to countervail monopsony power. What is the most accurate description?

    • Unions have no effect in a monopsony because the employer sets the wage alone
    • Unions raise the wage above MRP to create a permanent surplus of labour
    • Unions always reduce employment to zero in a monopsony
    • Unions can raise the wage and employment towards the competitive level in a monopsony labour market

13. Explain why imperfect information can allow an employer to pay below the MRP of its workers.

    • Employers always know the MRP of each worker exactly
    • Workers may not know wages available elsewhere or the value of their work, so they accept lower pay than competition would require
    • Workers can demand any wage they like from employers that have imperfect information
    • Imperfect information makes labour supply perfectly elastic

14. In a monopsony, the employer's labour demand curve is best described as:

    • The MRP curve, with the marginal cost of labour lying above the labour supply curve
    • The same as the labour supply curve
    • Vertical at the employment level that maximises output
    • Perfectly elastic at the market wage, so that the employer can hire any number of workers at the wage that the labour market has set

15. A monopsonist employs fewer workers than a competitive market would. The dead-weight loss in the labour market is:

    • The profit made by the monopsonist in the product market
    • The wage paid to the monopsonist's last worker
    • The surplus lost on workers who would have been employed at the competitive level, given their MRP
    • The total wage bill of the monopsonist

16. Which factor could reduce a monopsonist's power to hold wages below the competitive level?

    • A fall in the product price for the employer, which reduces the firm's revenue and so makes it less able to pay high wages to its staff
    • A reduction in the number of workers available to hire
    • A rise in the employer's fixed costs, which forces the firm to cut wages so that it can cover its overheads in each period of trading
    • A trade union or a statutory minimum wage that forces the employer to pay more

17. A monopsonist's MRP is £40 per worker and it pays £30. The exploitation gap per worker is:

    • 40 per worker, the full MRP
    • £10 per worker, the difference between MRP and the wage
    • 30 per worker, the wage paid, since the wage is the only cost that the monopsonist records for each worker it hires in the period
    • 70 per worker, the sum of MRP and wage, which is the total value that the firm gains from each worker it employs in the period

18. Imperfect information in the labour market can affect:

    • The wages workers accept and their willingness to change jobs
    • The number of firms that can operate in an industry
    • The equilibrium price of the final product exclusively
    • Government tax revenue alone, since information problems influence only the income tax that the state collects from workers each year

19. Which statement about labour market imperfections is correct?

    • Imperfect information eliminates all differences between wages
    • Monopsony sets a wage above MRP and employment above the competitive level
    • Unions always reduce employment and wages in every market
    • A monopsonist sets a wage below MRP and employment below the competitive level, while a union can raise both towards the competitive level

20. Which of these is an example of an imperfectly competitive labour market?

    • Firms competing for identical unskilled workers with free movement, where many employers bid for the same pool of workers in each area
    • A labour market in which all workers are paid the same hourly rate by law
    • A rural area with a single large employer and few alternative jobs for local workers
    • A national market for graduate teachers with equal pay for all

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