Lesson 3.4.6

3.4.6 Monopsony Quiz: Pearson Edexcel Economics A, Unit 3

20 questions

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Lesson 3.4.6, Monopsony: 20 multiple choice questions for the Pearson Edexcel Economics A (9EC0), Unit 3: Theme 3: Business behaviour and the labour market, written with Revision Ninja.

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The 20 questions

  1. A monopsony is best described as a market with:

    • A single buyer of a factor input, such as labour in a company town
    • A market where government sets all wages for every worker
    • A single seller of a final product to many buyers
    • Many small buyers competing for the same factor input

  2. Which conditions allow a monopsony to operate?

    • A perfectly elastic supply of labour at the market wage
    • Many buyers competing vigorously for the same workers
    • Free movement of workers between all regions and occupations
    • A single or dominant buyer, high barriers to entry for other buyers, and an upward sloping labour supply

  3. A monopsonist typically pays a wage:

    • Equal to zero for all workers in the market
    • Equal to the marginal revenue product of labour
    • Equal to marginal cost of labour for every worker
    • Below the marginal revenue product of labour

  4. Marginal factor cost (MFC) under monopsony is:

    • The extra cost of hiring one more worker, which exceeds the wage because all existing workers must also be paid the higher wage
    • The wage, which is equal to MFC at every level of hiring
    • Falling as more workers are hired by the monopsonist
    • Zero for the first worker and falling for each worker after

  5. What is the typical effect of monopsony on workers?

    • Higher wages and higher employment than in a competitive market
    • Wages equal to the competitive level with no change in employment
    • Lower wages and lower employment than in a competitive market
    • Unlimited employment at any wage the workers choose

  6. Labour supply is W = 4 + 0.5L, so total labour cost is 4L + 0.5L^2 and MFC = 4 + L. If MRP is £20, what wage does the monopsonist pay?

    • £16
    • £8
    • £12
    • £20

  7. A benefit of monopsony to the employer is:

    • Lower profit than under competition in the same market
    • Stronger bargaining by a union of workers
    • A lower wage bill and higher profit per worker
    • Higher wages for workers in the market

  8. Which policy counters the power of a monopsonist?

    • A tax on labour supply paid by all workers in the market
    • A subsidy paid only to monopsonist employers
    • A national minimum wage set at or near the competitive level
    • Abolition of all minimum wage rules across the economy

  9. Why might a monopsonist employ fewer workers than a competitive market?

    • It pays the highest wage in the market to attract workers
    • It restricts hiring to keep the wage low, so employment is below the competitive level
    • It always hires more workers than competitive employers do
    • It sets employment at full capacity regardless of wages

  10. Which is a realistic example of monopsony in the UK?

    • Retail chains competing nationally for the same staff
    • Many small employers of cleaners competing in one city
    • A market with thousands of employers competing for the same workers
    • A single major employer dominating local jobs, such as a large mine or hospital in a remote area

  11. Monopsony tends to reduce:

    • Employees' earnings above the competitive level in every case
    • Competition between employers for workers in the market
    • The number of employers in the local labour market
    • Supplier welfare and employees' earnings compared with competitive outcomes

  12. How does monopsony differ from monopoly?

    • The two terms describe exactly the same market structure
    • Monopsony applies only to goods markets and not to labour
    • Monopsony is a single buyer in a factor market, whereas monopoly is a single seller in a product market
    • Monopsony is a single seller in a product market for goods

  13. Why does marginal factor cost lie above the labour supply curve under monopsony?

    • Labour supply is perfectly elastic at the monopsony wage
    • Each worker has a fixed wage that never changes with hiring
    • The marginal revenue product of labour is always zero
    • Hiring an extra worker raises the wage paid to all existing workers as well

  14. Which group benefits most from monopsony?

    • Consumers of the product, who pay lower prices
    • Other employers who enter the market to hire workers
    • Workers in the market, who earn more
    • The monopsonist employer, through a lower wage bill

  15. Evaluate: should government intervene in a monopsony labour market?

    • No, because labour markets are always competitive in practice
    • Possibly: a minimum wage can raise wages and employment towards the competitive level, but set too high it may cause unemployment
    • Yes, by allowing the employer to set any wage it likes
    • No, monopsony always benefits society as a whole

  16. Labour supply is W = 10 + L and MFC = 10 + 2L. MRP is £40 per worker. What employment and wage does the monopsonist choose?

    • Employment of 15 and a wage of £25
    • Employment of 30 and a wage of £40
    • Employment of 15 and a wage of £40
    • Employment of 10 and a wage of £20

  17. In the competitive benchmark for the same market (W = 10 + L, MRP = 40), what are employment and wage?

    • Employment of 30 and a wage of £40
    • Employment of 30 and a wage of £25
    • Employment of 40 and a wage of £10
    • Employment of 15 and a wage of £25

  18. Why can a minimum wage set between the monopsony and competitive wage increase employment?

    • A minimum wage always reduces employment in every market
    • It removes the incentive to restrict hiring, since the employer must pay at least the minimum wage for each additional worker
    • A minimum wage has no effect on employers' hiring decisions
    • Monopsonists never adjust their hiring in response to any wage change

  19. Which is a limitation of monopsony theory for real labour markets?

    • Labour markets are always perfectly competitive in practice
    • Workers may move between employers, and unions, bargaining and imperfect information complicate predictions
    • Monopsony never exists in practice anywhere in the economy
    • Monopsony depends only on product prices and not on labour supply

  20. Evaluate: does monopsony always reduce employment?

    • True in all cases, regardless of any market conditions
    • True, because monopsony always increases the wage above competition
    • Overstated: monopsony usually leads to lower employment than the competitive level, but outcomes depend on market conditions
    • False, because monopsony never pays any wages to workers

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