Question

4) Explain why the following statements are either true or false:

A: In a competitive labor market, a minimum wage above the market equilibrium will reduce the level of employment.

B: In a monopsony labor market, a minimum wage set above equilibrium will always reduce the level of employment.

C: In bilateral monopoly labor markets the monopsony employer and the union bargain to an outcome that is closer to a competitive equilibrium.

D: If two industries have identical labor supplies and operate in competitive labor markets then there is no reason for them to have different wage levels. 


Answer 1

True, whenever the labour market is in the equilibrium, this means that the wages are currently at market price, or the going price which the firms are curious to pay and the workers are curious to agree to when they find for new jobs. When the minimum wages are set above the equilibrium, unemployment increase.

False, in a monopsony market, a minimum wage above the equilibrium wage shall increase the employment at same time when it boosts the wages. The workers employed in a monopsony market receive the wages which are much lesser than their market prices.

False, the bilateral monopoly market has both sides monopoly power and the equilibrium level of the employment is lower than that of the competitive labour market, but equilibrium wages varies depending on the side which can negotiate better.

True, when two industries have same level of labour supplies and also operate in the competitive labour market then their wage levels will also be same as per the market price which will be considered to be general in this case.