As product markets become more competitive and the markup decreases,we would expect which of the following to occur?
A)no change in the real wage in the medium run.
B)an increase in the aggregate price level and an increase in output in the medium run.
C)an increase in the interest rate in the medium run.
D)no change in output in the medium run.
E)an increase in the real wage in the medium run.

Question

Quizplus · Accepted Answer

As product markets become more competitive, firms have less power to set prices above costs, leading to a decrease in markups. This typically results in an increase in the real wage in the medium run, as workers can negotiate for higher wages when firms have less pricing power.

As Product Markets Become More Competitive and the Markup Decreases,we