Problem
Consider two labour markets that are identical, aside from the fact that one is a monopsony and the other is perfectly competitive.
I. Which labour market would you expect to pay the higher wage? Explain.
II. Which labour market would you expect to have the higher level of employment? Explain.
III. Now, assume that the government implements a minimum wage in both labour markets. Specifically, the minimum wage is set equal to the perfectly competitive labour market's equilibrium wage.
i. Do you expect the new minimum wage to increase/decrease/not affect the wage level in the monopsonistic labour market? Do you expect the new minimum wage to increase/decrease/not affect the employment level in the monopsonistic labour market? Explain.
ii. Do you expect the new minimum wage to increase/decrease/not affect the wage level in the perfectly competitive labour market? Do you expect the new minimum wage to increase/decrease/not affect the employment level in the perfectly competitive labour market? Explain.