Consider the labour market in which there is just one employer, a monopsonist. The introduction of an effective minimum wage:
A)will cause the firm to go out of business.
B)will fix the wage rate in the long run.
C)will change the level of employment.
D)will decrease the wage rate in the long run.

Question

Quizplus · Accepted Answer

The introduction of an effective minimum wage will change the level of employment in the market, as the monopsonist employer will be forced to pay a higher wage rate than before. This may lead to some reduction in the quantity of labour demanded by the firm, as it will become more expensive for them to hire workers. However, the overall impact on employment will depend on the elasticity of labour supply and the extent to which the monopsonist can pass on the costs of the minimum wage to consumers. It is unlikely to result in the firm going out of business or fixing the wage rate in the long run, but it may result in lower profits for the monopsonist and lower wages for workers in the long run.

Consider the Labour Market in Which There Is Just One