Suppose the upward sloping labor supply curve shifts leftward in a labor market with a single employer (monopsony). What happens to the equilibrium wage and level of employment in the market?
A) Wage and level of employment increase.
B) Wage increases and level of employment declines.
C) Wage decreases and level of employment increases.
D) Wage and level of employment decline.

Question

Quizplus · Accepted Answer

When the labor supply curve shifts leftward, the monopsonist employer faces a higher wage rate for the same level of employment. This is because there are now fewer workers available to hire at each wage rate. As a result, the monopsonist employer reduces the level of employment to reach a new equilibrium. However, the new equilibrium wage rate is higher than the original wage rate. Therefore, the equilibrium wage increases, but the level of employment declines.

Suppose the Upward Sloping Labor Supply Curve Shifts Leftward in a Labor