Effect of Increased Competition on Equilibrium and Income Distribution
An increase in the degree of competition among firms reduces their ability to set high markups over costs. This decrease in the markup causes the price-setting (PS) curve to shift upward, indicating a higher real wage for any given level of employment. Consequently, the economy moves to a new equilibrium characterized by both a higher real wage and increased employment. This shift also alters income distribution, as the share of national output allocated to profits decreases while the share going to wages increases, leading to a reduction in overall income inequality.
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Ch.2 Unemployment, wages, and inequality: Supply-side policies and institutions - The Economy 2.0 Macroeconomics @ CORE Econ
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Impact of Market Deregulation
A government successfully implements new policies that significantly increase the degree of competition among firms in an economy. Starting with the most immediate effect on firms, arrange the following outcomes in the correct logical sequence.
In an economy described by the wage-setting and price-setting model, suppose new legislation significantly lowers the barriers for new companies to enter the market. How would this change most likely affect the labor market equilibrium and the distribution of income?
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