Recall the labour market model. Consider now an increase in the degree of competition faced by the firms in the economy in the short term. Which of the following statements is correct regarding the effect of increased competition in the short term?Select the two correct answersGroup of answer choicesThe price-setting curve shifts downThe markup shrinks, increasing the share of output that can be claimed by the workersThe equilibrium real wage increasesThe wage-setting curve shifts down
Question
Recall the labour market model. Consider now an increase in the degree of competition faced by the firms in the economy in the short term. Which of the following statements is correct regarding the effect of increased competition in the short term?Select the two correct answersGroup of answer choicesThe price-setting curve shifts downThe markup shrinks, increasing the share of output that can be claimed by the workersThe equilibrium real wage increasesThe wage-setting curve shifts down
Solution
The two correct answers are:
-
The markup shrinks, increasing the share of output that can be claimed by the workers: When competition increases, firms are forced to reduce their prices to remain competitive. This reduces the markup, which is the difference between the cost of production and the selling price. As a result, the share of output that can be claimed by the workers increases.
-
The price-setting curve shifts down: The price-setting curve represents the price that firms set for their products. When competition increases, firms are forced to reduce their prices, which shifts the price-setting curve downwards. This means that for any given level of employment, the real wage that firms are willing to pay is lower.
The equilibrium real wage does not necessarily increase with increased competition in the short term. It depends on other factors such as the wage-setting curve and the level of employment. Similarly, the wage-setting curve, which represents the real wage that workers are willing to accept, does not necessarily shift down with increased competition. It depends on other factors such as the bargaining power of workers and the unemployment rate.
Similar Questions
As product markets become less competitive and the markup rises, we would expect which of the following to occur?Group of answer choicesno change in the real wage in the medium runan increase in the aggregate price level as output increasesa reduction in the interest rate in the medium runno change in output in the medium runa reduction in the real wage in the medium run
which of the following statements is correct, Amanda is confident that she knows the correct answer. She must choose:Question 38Select one:a.A decline in the price of X will increase the demand for substitute product Y.b.A decrease in income will decrease the demand for an inferior good.c.An increase in income will reduce the demand for a normal good.d.An increase in the price of C will decrease the demand for complementary product D.
With reference to the labour market model, which of the following statements is correct?Select one correct answerGroup of answer choicesThe unemployed can get a job by offering to work for a wage lower than the equilibrium wageFirms aim to set as high a price as possible.Once they have the job, employees are better off not exerting any effort in their work.In order to motivate employees to work hard and well, firms set the wage sufficiently high so that workers receive an employment rent, in other words, there is a nonzero cost of job loss.
Consider the market for petrol. Which of the following changes would most likely lead to an increase in the demand for petrol? [Tick the best answer] Group of answer choices A decrease in the price of petrol cars. A decrease in the cost of public transport fares. An increase in income if private car travel is a normal good. Both a and b are correct. Both a and c are correct
An decrease in the minimum wage will tend to cause which of the following?Group of answer choicesAn increase in the quantity demanded of laborAn increase in the number of workers employedAn increase in the quantity supplied of laborA reduction in poverty
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.