Question

What is a monopsony?

Short answer

A monopsony is a market structure where there is only one buyer but many sellers. The sole buyer controls the market terms, influencing the price of goods or services. An example could be a mining town where the mining company is the only employer and, thus, the only buyer of labor from the town's inhabitants.

Step-by-step solution

Definition

A monopsony is a market structure in which there is only one buyer (the monopsonist) but many sellers. This situation is a mirror image of a monopoly where there is only one seller, but many buyers. The monopsonist has the market power to determine the price at which they are willing to buy goods or services.

Attributes

In a monopsony, due to being the sole buyer, the monopsonist can influence the price and other market outcomes according to their preferences. This may occur because the sellers, having only one potential customer, are in less advantageous position.

Providing examples

An example of a monopsony can be a mining town where the mining company is the only employer and buys labor from the inhabitants of the town.