6.3.8

Government Protection of Suppliers and Employees

Test yourself

Monopsony Employers in the Labour Market

A monopsony employer is where one firm dominates the hiring in the market.

Illustrative background for Monopsony powerIllustrative background for Monopsony power ?? "content

Monopsony power

  • In a perfectly competitive labour market, a firm will hire where supply is equal to the marginal revenue product (MRP).
  • A monopsony employer looking to maximise profits will hire labour at the point where the MRP is equal to the marginal cost.
  • At this point, the wage is lower than under a perfectly competitive labour market.
Illustrative background for Marginal and average costIllustrative background for Marginal and average cost ?? "content

Marginal and average cost

  • At each wage, the number of workers willing to work is shown by the average cost curve.
  • Marginal cost is above average because they have to attract new workers with the prospect of a higher wage, while also paying existing staff more to compensate.
Illustrative background for Government interventionIllustrative background for Government intervention ?? "content

Government intervention

  • Governments can increase workers' rights and help to protect them from a monopsony employer.
  • Setting a national minimum wage may stop a monopsony employer from hiring workers at a point where the wage is lower than in a perfectly competitive labour market.
  • Setting a minimum wage at w min could increase wages in a monopsony.
  • However, the minimum wage must be set at the right level, or it may have no impact.

State Provision (or Nationalisation)

The state can provide a number of goods and services for consumers. This is called state provision. Nationalising an industry could be a way to protect suppliers and employers in a market.

Illustrative background for State provisionIllustrative background for State provision ?? "content

State provision

  • The government either provides state provisions itself (e.g. state education) or provides free goods or services to the public that it's bought from the private sector (e.g. private health services offered free to NHS patients).
  • The government pays for goods/services through tax revenues. It then offers them to the public for free.
  • Examples:
    • The National Health Service (NHS).
    • Police service.
    • Secondary school education.
Illustrative background for Advantages of state provisionIllustrative background for Advantages of state provision ?? "content

Advantages of state provision

  • State provision can reduce inequality by redistributing money from the wealthy to the poor. This is something the market doesn't always do.
  • Without state provision, some services might not exist as they aren't profitable.
    • E.g. some train routes that aren't profitable do not exist.
  • Value judgements need to be made about what the state can and can't provide well.
Illustrative background for Disadvantages of state provisionIllustrative background for Disadvantages of state provision ?? "content

Disadvantages of state provision

  • Without a drive for profit, there is less incentive to make a service as efficient as possible. The economic incentives for efficiency could be eroded.
  • There is an opportunity cost of providing one service over another.
  • With asymmetric information, there is a risk of government failure.

Jump to other topics

1Introduction to Markets

2Market Failure

3The UK Macroeconomy

4The UK Economy - Policies

5Business Behaviour

6Market Structures

7A Global Perspective

8Finance & Inequality

9Examples of Global Policy

Go student ad image

Unlock your full potential with GoStudent tutoring

  • Affordable 1:1 tutoring from the comfort of your home

  • Tutors are matched to your specific learning needs

  • 30+ school subjects covered

Book a free trial lesson