Analyzing the Impact of a Minimum Wage Below Equilibrium in a Monopsony Market

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This analysis explores the effects of implementing a minimum wage lower than the equilibrium wage (W1) in a monopsony market. In such a market, a single buyer (employer) has significant control over wage determination. When a wage floor is introduced below W1, it leads to a decrease in the quantity of labor demanded. Workers may experience reduced hours and lower overall income, prompting potential negative effects on worker welfare. The surplus created by the monopsony is diminished, causing shifts in both labor supply and demand curves, and constraining market efficiency.

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May 05, 2026

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Analyzing the Impact of a Minimum Wage Below Equilibrium in a Monopsony Market

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Monopsony Assignment Add to the graph on the next slide a minimum wage less than W1. Describe what will happen in this market from this type of minimum wage. Hint: Here you probably do not want to be brief. Give a full analysis. Hint 2: think about a competitive market for output and consider a wage floor below equilibrium.
$ MLC S Wc W1 MRP = D L L1 Lc