The Need to Increase Competition

Effects of Declining Competition: Rising Markups, Profit Shares, and Inequality

An economy has experienced a sustained increase in the average price markup charged by firms over the last three decades, indicating a general rise in their market power. Based on the typical societal effects of such a trend, which of the following outcomes would be the least expected direct consequence?

An individual's preferences for consumption (c) and free time (t) are represented by the utility function U(c, t) = c * t. The individual has a total time endowment of T hours, earns a wage of 'w' per hour worked, and receives unearned income of 'I'. Which of the following expressions correctly represents the individual's optimal choices for consumption and free time as functions of their wage and unearned income?

Analyzing Economic Trends in a Hypothetical Nation

Analyzing the Societal Impact of Rising Corporate Market Power

Market Power and Income Distribution

A long-term, economy-wide increase in the ability of firms to set prices above their marginal costs can lead to several negative societal outcomes. Match each outcome with its most direct underlying economic mechanism.

An economy-wide increase in firms' ability to set prices significantly above their production costs primarily benefits society by fostering greater innovation and investment, leading to higher overall economic growth.

Analyzing Economic Data for a Hypothetical Country

Scenario: In a national economy, new policies significantly weaken regulations that promote competition. Over the following decade, observers note that while corporate profits soar, the average purchasing power of wages stagnates, and overall business investment in new ventures slows down. This outcome is a classic example of societal damage from rising market power, which tends to cause a long-term decrease in the ______ share of national income.

A national economy undergoes a structural shift leading to a sustained increase in the market power of its dominant firms. Arrange the following economic consequences in the most likely causal sequence that would follow this initial shift.