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A-Level Economics · Monopsony labour market diagram question

Which point is the WAGE the monopsonist actually pays?

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The diagram

The answer

Point C. From A read DOWN to the supply curve at C: Wm = £4. The supply curve tells you the lowest wage that brings 4 workers to the door — so that is what the firm pays. The monopsonist must stay somewhere on the labour supply curve, and it wants to be as far DOWN it as possible. So from A, read DOWN to S at C, then across to E: £4. The firm COULD pay £8, but it does not need to — 4 workers will show up for £4. Reading the wage up at A is the single most common mistake on this diagram.

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This is one of 6 questions on the monopsony labour market diagram — every corner lettered, every wrong answer diagnosed.

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