In an economic model where firms' price markups over cost are not constant but increase as production approaches full capacity, what is the combined effect of a significant rise in employment on the bargaining gap?

Deconstructing the Bargaining Gap

Analyzing Labor Market Dynamics During an Economic Boom

Dual Mechanisms of Bargaining Gap Expansion

In an economic model where firms' price markups increase as they approach full capacity, the bargaining gap widens with rising employment only because workers gain more leverage to negotiate for higher wages.

As employment rises in an economy where firms' price markups increase as they near full capacity, the bargaining gap widens. Match each underlying cause to its corresponding effect on the labor market model's curves.

Contrasting Labor Market Models

In a model where firms' price markups increase as they approach full capacity, the bargaining gap widens with rising employment due to both increased worker leverage and the firms' ability to increase their ______, which pushes down the real wage they offer.

In an economic model where firms' price markups rise as they approach full capacity, an increase in employment triggers a chain of events on the firms' side that contributes to a wider bargaining gap. Arrange the following steps to reflect this causal sequence.

Consider an economic model where firms' ability to set prices above their costs increases as production levels approach the economy's maximum capacity. If this economy experiences a substantial rise in employment, which statement best analyzes the dual impact on the bargaining gap (the difference between the real wage sought by workers and the real wage offered by firms)?

Figure 4.26: Profit-Push Inflation Due to Capacity Constraints