Chapter 13R, Problem 17MCQ

To determine

The correct option that defines the situation if effective minimum wages are imposed on monopsony which are lower than the wages offered by the perfect competitive market.

Answer to Problem 17MCQ

Option b is correct.

Explanation of Solution

Explanation for correct option:

b.

In monopsony firms, if minimum wage criteria is imposed and the wages offered by monopsony firm is lower than the wages offered by perfect competitive firms then there will be shortage of workers and employment would decrease. This is because the workers will work where wages are higher. Therefore, option b is correct.

Explanation for incorrect options:

a.

Employment would decrease definitely but workers will get work in perfect competitive market. So, there would be no unemployment. Therefore, option a is incorrect.

c.

If high wages were being paid by the monopsony firms then there will be no reduction in employment. These firms do not hire more workers. Therefore, option c is incorrect.

d.

In case, minimum wages are imposed then firm will hire less workers which will reduced the employment. Therefore, option d is incorrect.

e.

In monopsony firms, if minimum wages criteria are imposed then firm will hire less workers due to which there will be reduction in employment level. Therefore, option e is incorrect.

Economics Concept Introduction

Factor of production: Factor of production refers to the components or the resources that are required for producing intangible or tangible products.

Factor income: Factor income refers to returns received by the producer for inserting each factor of production as an input.