The diagram below shows the supply and demand for labour in a hypothetical town in northern British Columbia,with only one employer,a logging company.
FIGURE 14- 4
-Refer to Figure 14- 4.Suppose this labour market is in a monopsonistic equilibrium.Then,suppose the provincial government of British Columbia imposes a minimum wage for employees in this industry of $30 per hour.What will be the effects on wages and employment?

Question

The diagram below shows the supply and demand for labour in a hypothetical town in northern British Columbia,with only one employer,a logging company.
  FIGURE 14- 4
-Refer to Figure 14- 4.Suppose this labour market is in a monopsonistic equilibrium.Then,suppose the provincial government of British Columbia imposes a minimum wage for employees in this industry of $30 per hour.What will be the effects on wages and employment?

Quizplus · Accepted Answer

In a monopsonistic market, the employer has market power to set wages lower than the marginal revenue product of labor. When a minimum wage is imposed, it raises the wage rate above the monopsonistic level, leading to an increase in employment and a higher wage rate. In this case, since the minimum wage of $30 per hour is above the equilibrium wage rate of $25 per hour, the wage rate will increase by $5 per hour. Additionally, since the demand for labor is more elastic than the supply of labor, employment will increase by 250 units of labor. Therefore, the correct answer is E.

The Diagram Below Shows the Supply and Demand for Labour