Which of the following statements is TRUE?
A) It is easier to establish a cartel for a manufactured good than for a natural resource.
B) Cartels are more successful when there are many substitutes for the cartel's good.
C) The high prices charged by a cartel might lead to new firms entering the industry, reducing the cartel's market power.
D) OPEC's high oil prices encourage countries like Mexico, Great Britain, and the Netherlands to cut back on oil production.

Question

Quizplus · Accepted Answer

The statement that high prices charged by a cartel might lead to new firms entering the industry, reducing the cartel's market power is true. This is because the high prices create an incentive for new firms to enter the market and undercut the cartel's prices, leading to a decrease in the cartel's market share and power. The other statements are not true: A is false as natural resources are often easier to cartelise, B is false as cartels are more successful when there are fewer substitutes, and D is false as high oil prices encourage more production, not less.

Which of the Following Statements Is TRUE