Definition
- Monopsony
- A monopsony is a labour market in which there is only one employer, so workers who want that kind of job must accept its wage.
- Not to be confused with: Monopoly
- A monopoly is a market with only one seller, which can charge any price it wishes and must lower it to sell more.
Example
Can you think of an example of monopsony?
A food-processing plant is the only large employer in a small town. It can hire 200 workers at £11 an hour, or 201 at £11.05. The extra worker gets £11.05, and the other 200 each get 5p more, adding £10: that worker costs £21.05 an hour. If their marginal revenue product is £16, the plant does not hire them, even though they would work for £11.05.
Test yourself
What is the difference between monopsony and monopoly?
A monopsony is the only buyer, here of labour; a monopoly is the only seller of a product.