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What is Monopsony?
When there is the case of a single buyer and many producers, it is called a "monopsonist".
There are two concepts called the producer’s surplus and the consumer’s surplus that one has to know in the field of economics. Let us talk about these in the proper sense in order to know about monopsony.
Let us take the figure that is shown here
The producer’s surplus and the consumer’s surplus are shown in the form of demand and supply curves here. The total quantity that is consumed is given by Q, which is the sum of all the areas of A, B, and C.
It is clear that the consumers would have to pay only for B and C. This way they get a surplus of A. The revenue that is got by the producers is from B and C. The surplus to them is B, as they just need the revenue from C in order to get the resources to make the total quantity of Q.
The tools that help us in the analyses of a variety of situations would be the producer’s surplus and the consumer’s surplus. In case you want to know if there are any ideas for the sellers to gang up against the buyers and more.
You can also find what would happen if the price is increased by the sellers and if they would be able to transfer the consumer surplus to their side or not.
In order to study that aspect, let us consider the following graph
The consumer surplus at the point marked as Pc here is A+B+D. The surplus to the producers at this point would be C+E. When the seller increases the price to Pm, then the surplus of the consumers is seen to reduce to the area at A.
Area B will move on to the producer surplus. But another thing to be noted here is that the producers would lose the area under E. In case the area covered by B is greater than that of E, then it is beneficial to the producers.
If the sellers start to do this, then the consumers are not the price makers, they would be the price takers. This way they are in search of the best possible deals. This is called price searching.
What is Monopsonist?
This case works well in the case of a monopoly. There is an alternative to it. If the consumers start to gang up on the sellers, then they would get the producer surplus on their side. This can happen in the case of a few consumers and many sellers. When there is the case of a single buyer, it is called a monopsonist.
