Increasing Share of Economic Profits in US National Income
In the United States, the portion of the total national income that is distributed as economic profits to firm owners has shown a long-term increasing trend. This development occurred during the same period that saw a rise in average firm markups.
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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.
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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?
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Figure 2.22: Share of Economic Profits in US Non-Financial Corporate Sector (1946–2016)
In a hypothetical national economy, researchers observe that the average markup—the percentage by which a firm's selling price exceeds its direct cost of production—has doubled over the past two decades. Assuming no other significant economic changes, what is the most direct and likely consequence of this trend on the distribution of that nation's income?
The observed long-term increase in the share of national income going to economic profits in the U.S. is primarily attributed to a corresponding long-term increase in labor productivity, which has allowed firms to generate more value without raising prices relative to costs.
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Firm Pricing and Income Distribution
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Match each economic phenomenon with its most direct description or implication.
A politician argues, 'The fact that the share of our national income going to business profits has been rising for decades is a positive sign. It shows our companies are becoming more efficient and innovative, which benefits everyone.' Based on the economic relationship between firm pricing behavior and income distribution, which of the following statements provides the most accurate critique of this argument?
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Firm Markups and Income Distribution
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