Question

When new European Union member countries join the EU they become subject to the European Union competition law--a law that regulates anticompetitive behavior and keeps markets within Europe more competitive (meaning firms have less market power). Using an AS-AD framework, briefly discuss the effect of the competition law on a country's decision to become an EU member country. Your (brief) discussion should include effects on the labor market as well as prices and output. You may find a graph or two helpful in keeping track of these effects.

Answer 1

The main objective of the European union competition law is to enable the proper functioning of the EU's internal market as key driver for well being of EU citizens ,business and for society as whole. It prevent restrictions and competition in the internal market. European Union competition law leads to effective competition among businesses. Effective competition allow them to compete on equal terms among member states . It results the businesses offers the best products at possible prices. It drives innovation and economic growth. If business offers best products at possible prices, it will increase the aggregate demand for good and services in the economy. Because consumers are being offered by an average prices. So they will purchase higher amount of good and services. It will shift aggregate demand curve to rightward as AD1. Higher aggregate demand forces the firms to produce good and services to meet the raise in aggregate demand. It will increase the supply of good and services in the economy. It shifts the AS curve rightward as AS1. It will not change the equilibrium prices . Increase in aggregate demand and aggregate supply will increase the output level from Y to Y1 Increase in production and output level rises the demand for labor to rise the production. It will shift labor demand curve rightward from Ld to Ld1. When firms include higher labors in the production process, output will also increase. Due to increase in production and output in the economy, EU competition law drives long run economic growth among European member countries.