What defines a monopsony in economic terms?

• A. A market with multiple sellers
• B. A market with only one buyer
• C. A market dominated by one seller
• D. A market with equal buyers and sellers

Answer: (B)

A monopsony is defined as a market structure in which there is only one buyer facing many sellers. This set-up creates a scenario where the single buyer has significant control over the market, allowing them to dictate terms, influence prices, and often driving down the wages or prices that sellers can charge.

In a monopsony, the lack of competition among buyers means that sellers are limited in their options and must accept the conditions set by the sole buyer. This is in stark contrast to other market structures like perfect competition, monopoly (where there’s one seller), or oligopoly (a few sellers), each of which operates under different dynamics. Understanding a monopsony is crucial for analyzing labor markets, especially in situations where a single employer dominates a region or industry, leading to potential implications for wage levels and worker rights.