Impact of Low Market Competition on Spain's Price-Setting Curve
In Spain, a lower degree of competition in product markets allows firms to set prices with a higher markup over costs, approximately 25%. This larger markup means that a smaller share of the firm's revenue goes to workers as real wages. In the wage-setting/price-setting model, a higher markup shifts the price-setting (PS) curve downwards, contributing to a lower equilibrium real wage.
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Introduction to Macroeconomics Course
Ch.2 Unemployment, wages, and inequality: Supply-side policies and institutions - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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According to the wage-setting/price-setting model, if Country A has higher taxes but lower unemployment than Country B, it is plausible that institutional factors in Country A, such as less generous unemployment benefits or weaker union power, are shifting its wage-setting curve downwards, more than offsetting the negative employment effect of its higher taxes.
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Impact of Low Market Competition on Spain's Price-Setting Curve
Learn After
Combined WS-PS Model Explanation for Spain's Poor Labor Market Performance
An economy is characterized by a low degree of competition, allowing firms to charge a significant markup over their costs. If the government successfully implements policies that increase competition in the product market, what is the most likely impact on the price-setting curve and the equilibrium real wage?
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In an economic model where wages and prices are determined, a decrease in product market competition allows firms to charge higher markups. This situation would cause the price-setting curve to shift upwards, leading to a higher equilibrium real wage.
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