Question 1

By 1985, OPEC had:

Accepted Answer

A)  sustained effectiveness as a cartel. 
B)  largely failed as a cartel. 
C)  disbanded. 
D)  not yet formed. 
A)  sustained effectiveness as a cartel. 
B)  largely failed as a cartel. 
C)  disbanded. 
D)  not yet formed.

Question 2

Cartels such as OPEC are difficult to maintain because cheating is a dominant strategy for all firms involved.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is TRUE?

Accepted Answer

A)  The more substitutes a resource has, the more likely a cartel controlling such a resource will succeed. 
B)  The more widespread a resource is, the more likely a cartel controlling such a resource will succeed. 
C)  Oil and diamond cartels tend to be more successful than copper and plumbing cartels. 
D)  Oil and diamond cartels have never been successful. 
A)  The more substitutes a resource has, the more likely a cartel controlling such a resource will succeed. 
B)  The more widespread a resource is, the more likely a cartel controlling such a resource will succeed. 
C)  Oil and diamond cartels tend to be more successful than copper and plumbing cartels. 
D)  Oil and diamond cartels have never been successful.

Question 4

A firm receives the largest profit from cheating on a cartel agreement when:

Accepted Answer

A)  all members of the cartel cheat. 
B)  none of the other cartel members cheats. 
C)  all cartel members expand output. 
D)  its demand curve is more inelastic than other cartel members. 
A)  all members of the cartel cheat. 
B)  none of the other cartel members cheats. 
C)  all cartel members expand output. 
D)  its demand curve is more inelastic than other cartel members.

Question 5

Use the following to answer questions: Table: Christie' and Sotheby's $$\begin{array} { | l | l | l | l | } 
\hline & & \text { Sotheby's Strategies } \
\hline & & \text { High Commission } & \text { Low Commission } \
\hline \text { Christie's } & \text { High Commission } & \text { \$4 million, \$4 million } & \text { \$2 million, \$6 million } \
\hline \text { Strategies } & \text { Low Commission } & \text { \$6 million, \$2 million } & \text { \$3 million, \$3 million } \
\hline
\end{array}$$
-(Table: Christie' and Sotheby's) Each cell of this table presents the revenues earned by the auction houses, Christie's and Sotheby's. Revenues are based on the type of commission each firm charges its clients, as well as what commission the other charges. Christie's revenues are listed first in each cell, then Sotheby's. If both firms cooperate and act like a cartel:

Accepted Answer

A)  both Christie's and Sotheby's will charge a high commission. 
B)  both Christie's and Sotheby's will charge a low commission. 
C)  Christie's will charge a high commission and Sotheby's will charge a low commission. 
D)  Christie's will charge a low commission and Sotheby's will charge a high commission. 
A)  both Christie's and Sotheby's will charge a high commission. 
B)  both Christie's and Sotheby's will charge a low commission. 
C)  Christie's will charge a high commission and Sotheby's will charge a low commission. 
D)  Christie's will charge a low commission and Sotheby's will charge a high commission.

Question 6

Bidding on asphalt jobs is a prisoner's ______ outcome.

Accepted Answer

A)  release 
B)  call 
C)  cooperation 
D)  dilemma 
A)  release 
B)  call 
C)  cooperation 
D)  dilemma

Question 7

Game theory can be used to study cartels and their behavior.

Accepted Answer

A) True 
 B)False

Question 8

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 is studying, what is it in your best interest to do?

Accepted Answer

A)  study and get a C 
B)  not study and get an F 
C)  drop the class 
D)  randomize over studying and not studying 
A)  study and get a C 
B)  not study and get an F 
C)  drop the class 
D)  randomize over studying and not studying

Question 9

OPEC is a cartel.

Accepted Answer

A) True 
 B)False

Question 10

When a cartel member produces more output and lowers prices,:

Accepted Answer

A)  the entire cartel is made more profitable. 
B)  it receives all the benefits of the increased sales and the other members bear the burden of lower profits. 
C)  it enjoys only a fraction of the benefits of selling more units. 
D)  it bears the entire cost of lower prices. 
A)  the entire cartel is made more profitable. 
B)  it receives all the benefits of the increased sales and the other members bear the burden of lower profits. 
C)  it enjoys only a fraction of the benefits of selling more units. 
D)  it bears the entire cost of lower prices.

Question 11

In the 1970s, the Department of Justice sued:

Accepted Answer

A)  MCI. 
B)  Sprint. 
C)  AT&T. 
D)  GTE 
A)  MCI. 
B)  Sprint. 
C)  AT&T. 
D)  GTE

Question 12

With an oligopoly if a group of firms is not able to coordinate or collude, prices will not be higher than in a competitive market.

Accepted Answer

A) True 
 B)False

Question 13

Cartels will tend to be more successful when there are ______ for the cartelized good.

Accepted Answer

A)  more substitutes 
B)  fewer substitutes 
C)  more producers 
D)  fewer consumers 
A)  more substitutes 
B)  fewer substitutes 
C)  more producers 
D)  fewer consumers

Question 14

Use the following to answer questions: Table: Russia, Saudi Payoff Table
Suppose that the oil market is dominated by two large firms, Saudi Arabia and Russia. Both Saudi Arabia and Russia have two choices or strategies: cooperate by cutting back production or cheat by increasing production. The payoff table below shows the potential revenues associated with each firm's strategies. For instance, if Saudi Arabia cheats and Russia cooperates, the payoff to Saudi Arabia is $1,000 and the payoff to Russia is $400. $$\begin{array} { | l | l | c | c | } 
\hline & & \text { Russia's Strategies } & { \text { Cheat } } \
\hline & & \text { Cooperate } & ( \$ 400 , \$ 1,000 ) \
\hline \text { Saudi Arabia's } & \text { Cooperate } & ( \$ 800 , \$ 800 ) & ( \$ 600 , \$ 600 ) \
\hline \text { Strategies } & \text { Cheat } & ( \$ 1,000 , \$ 400 ) & ( \$ 5 ) \
\hline
\end{array}$$
-(Table: Russia, Saudi Payoff Table) Refer to the table. What is Saudi Arabia's best strategy and associated payoff if Russia cooperates?

Accepted Answer

A)  cooperate; $800 
B)  cheat; $600 
C)  cooperate; $1,000 
D)  cheat; $1,000 
A)  cooperate; $800 
B)  cheat; $600 
C)  cooperate; $1,000 
D)  cheat; $1,000

Question 15

Which of the following statements is TRUE?

Accepted Answer

A)  Cartels are an important source of economic growth in developing countries. 
B)  Economists are not opposed to government-created cartels since they usually provide high-quality products and service. 
C)  One cost of government-sponsored cartels is that people spend resources trying to obtain or maintain a cartel rather than produce better products. 
D)  Government supported cartels usually mean more innovation. 
A)  Cartels are an important source of economic growth in developing countries. 
B)  Economists are not opposed to government-created cartels since they usually provide high-quality products and service. 
C)  One cost of government-sponsored cartels is that people spend resources trying to obtain or maintain a cartel rather than produce better products. 
D)  Government supported cartels usually mean more innovation.

Question 16

Customers are _____ refusing to join the loyalty plan only if _____ of them refuse.

Accepted Answer

A)  worse off; all or most 
B)  better off; all or most 
C)  better off; few 
D)  worse off; few 
A)  worse off; all or most 
B)  better off; all or most 
C)  better off; few 
D)  worse off; few

Question 17

In cases where a cartel controls access to a key production input, firms in the cartel:

Accepted Answer

A)  will always have an incentive to cheat on the agreement as cheating increases profits. 
B)  have less incentive to cheat for fear that they will be cut off from the key input. 
C)  are typically good at finding ways to access the key input outside the cartel. 
D)  will never cheat on the cartel agreement. 
A)  will always have an incentive to cheat on the agreement as cheating increases profits. 
B)  have less incentive to cheat for fear that they will be cut off from the key input. 
C)  are typically good at finding ways to access the key input outside the cartel. 
D)  will never cheat on the cartel agreement.

Question 18

The Sherman Antitrust Act prevents Microsoft from becoming too large.

Accepted Answer

A) True 
 B)False

Question 19

Cartels are:

Accepted Answer

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. 
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.

Question 20

Cartels tend to be more successful when:

Accepted Answer

A)  there are a large number of firms in the market. 
B)  the cartel is producing a good that can be produced anywhere in the world. 
C)  the cartel is producing a good for which there are few substitutes. 
D)  demand for the good is more elastic. 
A)  there are a large number of firms in the market. 
B)  the cartel is producing a good that can be produced anywhere in the world. 
C)  the cartel is producing a good for which there are few substitutes. 
D)  demand for the good is more elastic.

Exam 15: Oligopoly and Game Theory

By 1985, OPEC had:

Cartels such as OPEC are difficult to maintain because cheating is a dominant strategy for all firms involved.

Which of the following is TRUE?

A firm receives the largest profit from cheating on a cartel agreement when:

Bidding on asphalt jobs is a prisoner's ______ outcome.

Game theory can be used to study cartels and their behavior.

OPEC is a cartel.

When a cartel member produces more output and lowers prices,:

In the 1970s, the Department of Justice sued:

With an oligopoly if a group of firms is not able to coordinate or collude, prices will not be higher than in a competitive market.

Cartels will tend to be more successful when there are ______ for the cartelized good.

Which of the following statements is TRUE?

Customers are _____ refusing to join the loyalty plan only if _____ of them refuse.

In cases where a cartel controls access to a key production input, firms in the cartel:

The Sherman Antitrust Act prevents Microsoft from becoming too large.

Cartels are:

Cartels tend to be more successful when:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

Customers are _ refusing to join the loyalty plan only if _ of them refuse.