Monopsony basics

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  • Monopsony
    • A monopsony exists when there is only 1 buyer in the market
    • Monopsony equilibrium
      • In a perfectly competitive market, equilibrium ouptu would be where demand=supply
      • But if there is a monopsonist in the market, it will seek to buy at a lower price at 0E
      • But at this price, sellers will not want to supply as much so quantity supplied falls to 0A
    • Costs and benefits
      • The monopsonist
        • The monopsonist gains higher profits by being able to buy at a lower price
      • Supplier
        • Prices paid for their goods and serives will fall
      • Customers
        • Hopefully part of the lower costs will be passed onto the customer
        • However there will be restrcitions in supply dependent on the elasticity of the supply in the market as if supply is highly price inelastic (unable to change production) then there will be little fall in supply
    • Bilateral monopoly
      • Exists when there is only 1 buyer and 1 seller in the market
      • Economic theory dictates that prices and quantity demanded and supplied will be higher than in a market a monopsonist faces many sellers


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