As product markets become less competitive and the markup rises, we would expect which of the following to occur?
A) A decrease in the interest rate in the medium run.
B) An increase in the aggregate price level as output increases.
C) A decrease in the real wage in the medium run.
D) No change in the real wage in the medium run.
E) No change in output in the medium run.

Question

Quizplus · Accepted Answer

When product markets become less competitive, firms have more power to set prices and increase the markup. This results in a decrease in the real wage as firms pay workers less than they would in a more competitive market. The interest rate and aggregate price level are not directly affected by changes in competition in product markets. There may be some effect on output in the short run, but the question specifically asks about the medium run.

As Product Markets Become Less Competitive and the Markup Rises