Q12.4 Give an example of monopoly in the labor market. Discuss such a monopoly's effect on wage rates and on inflation.
Q12.4 ANSWER
With industrialization came a growing concentration on the purchase of labor services, and in some instances, this growing concentration was sufficient to create buyer (monopsony) power. Labor laws in the United States granted workers the right to unionize in order to create countervailing seller (monopoly) power in the market for labor services. The advantage of countervailing power is that markets characterized by monopsony-monopoly confrontation can sometimes lead to more efficient price-output combinations than markets characterized by uncontested buyer or seller power.