Answer to Question #91276 in Macroeconomics for Gurwinder Kaur

Question

How to calculate deadweight loss for monopsony?

Answer 1

Deadweight loss arises in this market because buyers will purchase less goods then would be sold in an equilibrium of a competitive market. In the monopsony equilibrium the buyers will have a higher willingness to pay then the market price. This may seem counter-intuitive as if they value a good more then the market price, you might think they would just purchase more goods until their willingness to pay was the same as the market price. However, the problem is that every additional unit they buy, they need to increase the price for all other units they have purchased.