Monopoly power, factor immobility and volatile prices

Overview

Occupational immobility of labour, geographical immobility of labour and cobweb effect.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   Why is monopoly power classed as a source of market failure?

   Model answer

   A firm with market power restricts output and charges above marginal cost. Resources are then allocated inefficiently across the economy.

2. 2

   How does monopoly power reduce consumer surplus?

   Model answer

   A higher price transfers part of consumer surplus to the producer as profit. A further part disappears as deadweight loss on the units no longer traded.

3. 3

   Define occupational immobility of labour.

   Model answer

   Occupational immobility occurs when workers cannot move between jobs because they lack the skills required. Unemployment persists alongside unfilled vacancies.

4. 4

   Define geographical immobility of labour.

   Model answer

   Geographical immobility occurs when workers cannot move to where the jobs are. Housing costs, family ties and moving costs are the usual obstacles.

5. 5

   Why is factor immobility a market failure?

   Model answer

   Resources stay in low-value uses when they could produce more elsewhere. Output is therefore below the economy's potential.

6. 6

   Give two policies that reduce occupational immobility.

   Model answer

   Publicly funded retraining gives displaced workers the skills employers now want. Apprenticeship subsidies encourage firms to train.

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