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 and can determine the wage rate. Without a minimum wage, the employer would pay a wage rate of Wm and employ Qm units of labor. When the minimum wage is introduced, it is set above the monopsony wage rate, which will increase the bargaining power of workers. Thus, the wage rate will increase from Wm to $30 per hour. At the same time, employment will increase from Qm to Qt. Therefore, the correct answer is C, wages will rise by $5 per hour and employment will increase by 250 units of labor.

The Diagram Below Shows the Supply and Demand for Labour