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 equilibrium, the employer has the power to set the wage rate lower than the marginal revenue product of labor. As a result, the wage rate is lower than it would be in a competitive market, and employment is also lower. When a minimum wage is imposed, it sets a price floor above the monopsonist's wage rate. This will lead to an increase in the wage rate and an increase in employment, as more workers are willing to work at the higher wage. Therefore, wages will rise by $5 per hour and employment will increase by 250 units of labour.

The Diagram Below Shows the Supply and Demand for Labour