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A-Level Economics · Monopsony labour market diagram question

Which distance measures the EXPLOITATION of the workers — the gap between what they are worth and what they are paid?

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The answer

The distance C A. MRPL £8 (A) minus the wage £4 (C): the vertical distance C to A. The worker produces £8 of value and takes home £4. Exploitation on this diagram means paid BELOW your marginal revenue product. Read it vertically at Qm: from the wage on the supply curve (C) up to MRPL (A) — £4 of value per worker that the firm keeps. Bargaining power is why: the monopsonist can make a take-it-or-leave-it offer, because the alternative is no job at all.

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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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