Societal Damage from Rising Market Power
According to research by economist Jan Eeckhout and his colleagues, the steady increase in market power observed since the 1980s has had damaging effects on society.
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Societal Damage from Rising Market Power
Figure 2.21: Estimated Average Markup for US Firms (1955–2016)
Increasing Share of Economic Profits in US National Income
An economist analyzes historical pricing data for a broad cross-section of firms in a developed economy. They observe that, on average, the ratio of a product's price to its marginal cost of production was relatively low and declining in the 1970s, but began a steep and sustained increase starting around 1980. Which of the following economic phenomena does this observation most directly support?
According to economic data for the United States, the average price markup charged by firms has increased consistently and without interruption every year since 1980.
Based on economic data for US firms from the mid-1960s to 2016, arrange the following periods in the correct chronological order according to the observed trend in the average price markup.
Analyzing Pricing Strategies Over Time
Analyzing Shifts in US Corporate Pricing Behavior
Match each time period with the corresponding trend observed in the average price markup for firms in the United States.
Describing Long-Term Pricing Trends in the US
An economist presents evidence showing that for the average US firm, the gap between the price of its products and the cost to produce one more unit of that product widened significantly between 1980 and 2016. Which of the following conclusions is most strongly supported by this specific observation?
An economic commentator claims, 'The period from 1980 to 2016 saw a relentless and uninterrupted increase in the pricing power of the average US firm.' Based on the observed historical data, which of the following findings most directly contradicts the 'uninterrupted' nature of this claim?
An economic historian argues that competition policies in the United States have been consistently effective at limiting the growth of corporate market power since the mid-20th century. Which of the following empirical findings for U.S. firms presents the strongest counter-evidence to this argument?
Interaction of Market Power and COVID-19 Shocks Drove Sellers' Inflation
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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.