Cartels are inherently unstable because individual members:
A) face horizontal demand curves.
B) tend to produce above their quotas.
C) are culturally and politically heterogeneous.
D) produce highly differentiated products.
E) have a low elasticity of supply.

Question

Quizplus · Accepted Answer

Cartels are agreements among firms to restrict output and raise prices in order to increase their profits. However, each member has an incentive to cheat and produce above their assigned quota in order to capture a larger share of the market and earn more profits. This leads to an unstable situation where the cartel is likely to break down as members violate the agreement. Therefore, individual members tend to produce above their quotas, making option B the correct answer.

Cartels Are Inherently Unstable Because Individual Members