Question 1

When producers engage in cartel-like behavior, they attempt to mimic the behavior of:
A) a competitive firm.
B) a small firm in a competitive industry.
C) a monopoly.
D) buyers.

Accepted Answer

Cartels are formed for the purpose of acting as a single monopoly, where producers collude to maximize profits by agreeing to limit production or increase prices. Therefore, they attempt to mimic the behavior of a monopoly, not a competitive firm, a small firm in a competitive industry, or buyers.

Question 2

Which of the following is NOT a reason why cartels tend to collapse and lose their power?
A) new entrants and demand response
B) government prosecution and regulation
C) cheating by the cartel members
D) They mistakenly raise the price too high.

Accepted Answer

The other options (A, B, and C) are all common reasons why cartels tend to collapse and lose their power. However, option D is not a reason why cartels tend to collapse. While raising prices too high may lead to a decrease in demand, it does not necessarily lead to the collapse of the cartel.

Question 3

If most cartel members keep their agreement to cut back production:
A) it's not profitable in the short run for another member to increase production.
B) it's profitable in the short run for another member to increase production.
C) cheating by another member won't be detected.
D) the losses associated with cheating are internalized by the cheater.

Accepted Answer

If most cartel members cut back production, it creates an opportunity for another member to increase production and capture a larger market share, making it profitable in the short run.

Question 4

OPEC is a:
A) group of oligopolistic producers that try to behave like a monopoly.
B) monopoly that tries to behave oligopolistically.
C) group of perfectly competitive producers that try to behave in a monopolistically competitive manner.
D) group of monopolistically competitive producers that try to behave in a perfectly competitive manner.

Accepted Answer

OPEC (Organization of the Petroleum Exporting Countries) is a group of countries that collaborate to control the production and price of oil. Their behavior is consistent with that of an oligopoly, where a few firms (in this case, countries) collude to limit competition and increase profits. Therefore, the best choice is A, a group of oligopolistic producers that try to behave like a monopoly.

Question 5

Firms operating in a cartel have a large incentive to cheat on the agreement by:
A) lowering prices and increasing production.
B) lowering both prices and production.
C) raising prices and increasing production.
D) raising prices and lowering production.

Accepted Answer

Cartel members have an incentive to cheat by lowering prices and increasing production to capture a larger market share and increase profits, despite the agreement to restrict output and keep prices high.

Question 6

Use the following to answer questions:
Figure: Demand 1 
-(Figure: Demand 1) A cartel facing the market in this diagram would try to cause industry output to:
A) increase from 5 to 10.
B) increase from 3 to 6.
C) decrease from 6 to 3.
D) decrease from 5 to 2.

Accepted Answer

A cartel is a group of producers that collaborate to restrict output and increase prices. In this case, the cartel would try to decrease industry output from 6 to 3 in order to increase the price and profits for the producers. By limiting supply, they can cause an upward shift in the demand curve, resulting in higher prices for the same level of output. Therefore, the best choice is C, decrease from 6 to 3.

Question 7

In 2011, 11 modeling agencies in Singapore were found to have acted together in raising prices of modeling services. These firms acted as a:
A) disunion.
B) cartel.
C) co-op.
D) Bertrand monopoly.

Accepted Answer

The 11 modeling agencies in Singapore that acted together in raising prices of modeling services were involved in a cartel. A cartel is a group of companies or firms that act together to reduce output, increase prices, and maximize profits.

Question 8

Use the following to answer questions:
Figure: Demand 1 
-(Figure: Demand 1) A successful cartel facing the market in this diagram would cause the industry price to:
A) decrease from $8 to $4.
B) increase from $4 to $8.
C) increase from $7 to $8.
D) increase from $4 to $7.

Accepted Answer

A successful cartel would restrict output, causing the market supply curve to shift to the left. This shift in supply would result in a higher market price, which would increase from $4 to $7. Therefore, the correct answer is D, increase from $4 to $7.

Question 9

People sometimes point to similar gas prices at competing gas stations as evidence of collusion when they could just be selling at market price. If this is not good evidence of collusion, what is?
A) The profits of the companies are unusually high in the short run.
B) The station owners regularly have morning coffee together.
C) There is some kind of punishment for cheating.
D) Someone thinks they overheard their plans for collusion.

Accepted Answer

Unusually high profits in the short run can be an indicator of collusion because collusion can lead to higher prices and therefore higher profits for all companies involved.

Answer: C
 The presence of punishment for cheating can deter collusion because if the companies get caught, they face penalties such as fines or even jail time. This fear of punishment can discourage collusion from happening in the first place.

Answer: D
 Overhearing plans for collusion can be good evidence of it occurring because it indicates that the companies are actively coordinating with each other to raise prices. However, this should be corroborated with other evidence to confirm its accuracy because it could potentially be a misunderstanding or a rumor.

Choice B is not good evidence of collusion because coffee meetings among station owners could simply be a social occasion or a chance to discuss common challenges in the industry. Similarly, similar gas prices at competing stations could be due to market forces and competition rather than collusion.

Question 10

Game theory is the study of:
A) strategic decision making.
B) strategies involved in board games, such as Monopoly.
C) theories of hunting big game.
D) strategies to play Sudoku.

Accepted Answer

Game theory is specifically focused on analyzing strategic decision making, often in scenarios where multiple parties have conflicting interests. It is not limited to board games or hunting, and it is not applicable to puzzle games like Sudoku.

Question 11

Game theory is the study of:
A) random decision making.
B) strategic decision making.
C) cartel decision making.
D) decision making allowing for irrational behavior.

Accepted Answer

Game theory is primarily concerned with strategic decision making, where the outcome of a decision is affected by the decisions of others in a competitive or cooperative setting. It does not necessarily involve random decision making, cartel decision making, or irrational behavior, although these may be factors in some cases.

Question 12

Which of the following best explains why cartel agreements are hard to maintain?
A) Each firm in the cartel has the incentive to raise prices and earn larger profits.
B) Each firm in the cartel has the incentive to increase production and earn larger profits.
C) Cartels are typically very profitable for firms in the short run, but not in the long run.
D) It is hard for each firm in the cartel to maintain a level of production equal to that of the other firms.

Accepted Answer

Each firm in a cartel has the incentive to increase production beyond the agreed limit to earn larger profits, which undermines the cartel agreement and leads to its potential collapse.

Question 13

Which of the following is NOT a possible way for a price-fixing scheme on potatoes to fall apart?
A) Potato farmers get arrested for anticompetitive pricing.
B) Some farmers sell more potatoes than agreed on.
C) People stop buying potatoes and switch to other foods.
D) The cost of producing potatoes falls.

Accepted Answer

If the cost of producing potatoes falls, the price-fixing scheme may still continue as long as the farmers continue to agree on a fixed price. Therefore, D is the correct answer as it is not a possible way for the price-fixing scheme to fall apart.

Question 14

A cartel is a:
A) group of suppliers that tries to act as if they were a monopoly.
B) market that is dominated by a small number of firms.
C) market with a large number of firms selling similar but not identical products.
D) group of suppliers that tries to act as if they were a perfectly competitive market.

Accepted Answer

A cartel is a group of suppliers that tries to act as if they were a monopoly by agreeing to limit production or fix prices in order to increase profits.

Question 15

Which United States President said, "Our neck is stretched over the fence and OPEC has a knife."?
A) Bill Clinton
B) Ronald Reagan
C) Gerald Ford
D) Jimmy Carter

Accepted Answer

This quote is attributed to former President Jimmy Carter. He made this statement in response to the 1979 oil crisis when OPEC raised oil prices and the United States faced a shortage. Carter warned that the country was overly reliant on foreign oil and needed to shift towards energy independence.

Question 16

Cartels are:
A) extremely powerful and able to keep prices and profits high indefinitely.
B) unstable and tend to lose market power over time.
C) like monopolies that try to earn normal or competitive profits.
D) firms that face perfectly elastic demand curves and increase profits by restricting output and raising prices.

Accepted Answer

Cartels are groups of firms that collude to restrict output and raise prices. While they may be able to gain market power initially, they are typically unstable and tend to lose market power over time due to cheating and the entry of new firms. Therefore, option B is the best choice as it accurately describes the likely outcome for cartels.

Question 17

OPEC stands for:
A) the Organization of Petroleum, Energy, and Consumption.
B) the Organization of Petroleum Exporting Countries.
C) the Outcome of Petroleum Energy Cooperation.
D) the Organization of Petroleum and Energy Corporation.

Accepted Answer

OPEC stands for the Organization of Petroleum Exporting Countries, which is an intergovernmental organization made up of 14 oil-producing nations whose goal is to coordinate and unify petroleum policies among member countries.

Question 18

A cartel is characterized by firms that act together in order to:
I. increase competition.
II. raise prices.
III. raise profit.
A) I only
B) I and II only
C) III only
D) II and III only

Accepted Answer

Cartels are formed by firms to increase their profits by colluding to raise prices and reduce output. Increasing competition is not a goal of a cartel.

Question 19

Game theory studies:
A) the choices made by agents when other agents engage in certain actions.
B) interactive decision making.
C) strategic reactions by firms.
D) strategies to win at such games as Monopoly.

Accepted Answer

The answer of Game theory studies:
A) the choices made by...

Question 20

If your economics class was graded on a curve and everyone agrees to study only half as much, everyone would get the same grade that they otherwise would earn. You, however, will earn an A if you study more than the others, a C if you study the same amount as others, and an F if everyone else studies more than you. You don't like studying, but you'd rather study and get an A than get a C without studying, or study and get a C than get an F without studying. If everyone else cuts back their studying, what is it in your best interest to do?
A) study and get an A
B) not study and get a C
C) drop the class
D) randomize over studying and not studying

Accepted Answer

In this scenario, if everyone else cuts back on studying, it gives you a higher chance of securing an A if you study more than the others. Since you would rather study and get an A than get a C without studying or study and get a C than get an F without studying, it is in your best interest to study and secure an A grade. Hence, the best choice would be to choose option A.

Quiz 15: Oligopoly and Game Theory

When producers engage in cartel-like behavior, they attempt to mimic the behavior of:

Which of the following is NOT a reason why cartels tend to collapse and lose their power?

If most cartel members keep their agreement to cut back production:

OPEC is a:

Firms operating in a cartel have a large incentive to cheat on the agreement by:

Use the following to answer questions: Figure: Demand 1 -(Figure: Demand 1) A cartel facing the market in this diagram would try to cause industry output to:

In 2011, 11 modeling agencies in Singapore were found to have acted together in raising prices of modeling services. These firms acted as a:

Use the following to answer questions: Figure: Demand 1 -(Figure: Demand 1) A successful cartel facing the market in this diagram would cause the industry price to:

People sometimes point to similar gas prices at competing gas stations as evidence of collusion when they could just be selling at market price. If this is not good evidence of collusion, what is?

Game theory is the study of:

Game theory is the study of:

Which of the following best explains why cartel agreements are hard to maintain?

Which of the following is NOT a possible way for a price-fixing scheme on potatoes to fall apart?

A cartel is a:

Which United States President said, "Our neck is stretched over the fence and OPEC has a knife."?

Cartels are:

OPEC stands for:

A cartel is characterized by firms that act together in order to: I. increase competition. II. raise prices. III. raise profit.

Game theory studies: