Trade unions may be viewed as being interested in wages and employment. Trade union utility rises when either or both of these variables increases, as the figure shows.

A trade union indifference curve collects all wage/employment combinations that give rise to the same predetermined utility level. They are similar to altitude lines shown on a geographical map.

We may use union indifference curves to understand the choices unions make during wage negotiations (Figure 2): Let the labour demand curve be in the red position. This curve shows the options the firms offer to the trade union. It says that higher wages may only be obtained at the cost of less employment; or more employment at the cost of lower wages. Given this trade off, which it cannot change, what does the union do? Since it can only run up and down the labour demand curve, it will move to the point it likes best among all points on the curve. Which one does it like best? The red one, because this yields the highest utility level, that is, lets the union achieve the indifference curve located further north-east than any other indifference curve it could meet while moving along the curve. So the red point represents the wage bargaining outcome between the monopolistic trade union and a group of firms with the given labour demand.

By the same line of argument, the blue point results if the labour demand curve is in the blue position, the green point if labour demand is in the green position, and so on. Now run a line through the obtained points. The intersection between this line and the labour demand curve marks the labour market equilibrium that obtains at the presence of a monopolistic trade union. This line may therefore be interpreted as the labour supply offered by a trade union that exercises monopoly power. We therefore call it the trade union labour supply curve.

The labour supply curve resulting from the monopoly power of trade unions sits left of the labour supply curve that would result if each individual acted alone.

Further reading on pp. 146-148.