Question 1

A dominant strategy is a strategy that a player should take only if the other player cheats.

Accepted Answer

A) True 
 B)False

Question 2

Cartels may tend to collapse and lose their power because of new entrants.

Accepted Answer

A) True 
 B)False

Question 3

Use the following to answer questions:
Figure: Competitive Market  
-(Figure: Competitive Market) Refer to the figure. If all firms in the market form a successful cartel, price and output in the market would be:

Accepted Answer

A)  P1 and Q1. 
B)  P1 and Q2. 
C)  P2 and Q1. 
D)  P2 and Q2. 
A)  P1 and Q1. 
B)  P1 and Q2. 
C)  P2 and Q1. 
D)  P2 and Q2.

Question 4

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

Accepted Answer

A)  Bill Clinton 
B)  Ronald Reagan 
C)  Gerald Ford 
D)  Jimmy Carter 
A)  Bill Clinton 
B)  Ronald Reagan 
C)  Gerald Ford 
D)  Jimmy Carter

Question 5

OPEC is a(n) ________ of oil-exporting countries.

Accepted Answer

A)  cartel 
B)  group 
C)  monopoly 
D)  oligopoly 
A)  cartel 
B)  group 
C)  monopoly 
D)  oligopoly

Question 6

In a competitive market, each firm earns ________ economic profits, whereas firms in a successful cartel will earn ________.

Accepted Answer

A)  positive; zero economic profits 
B)  negative; positive economic profits 
C)  positive; monopoly profits 
D)  zero; positive economic profits 
A)  positive; zero economic profits 
B)  negative; positive economic profits 
C)  positive; monopoly profits 
D)  zero; positive economic profits

Question 7

Cartel member strategy can be like a prisoner's ______ game.

Accepted Answer

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

Question 8

Tactic collusion occurs when firms:

Accepted Answer

A)  meet and decide on their collusion tactics. 
B)  limit competition with one another but they do so without explicit agreement or communication. 
C)  meet and play the prisoner's dilemma just once. 
D)  cheat rather than cooperate. 
A)  meet and decide on their collusion tactics. 
B)  limit competition with one another but they do so without explicit agreement or communication. 
C)  meet and play the prisoner's dilemma just once. 
D)  cheat rather than cooperate.

Question 9

If every member of OPEC produces beyond quota, then cartel members:

Accepted Answer

A)  earn monopoly profits. 
B)  fail to earn monopoly profits. 
C)  cannot profit. 
D)  may or may not earn monopoly profits. 
A)  earn monopoly profits. 
B)  fail to earn monopoly profits. 
C)  cannot profit. 
D)  may or may not earn monopoly profits.

Question 10

What does it mean when an OPEC member cheats?

Accepted Answer

A)  The country produces less oil than it agreed to. 
B)  The country produces lower-quality oil rather than higher-quality oil. 
C)  The country produces more oil than it agreed to. 
D)  The country closes down oil wells for routine maintenance during peak holiday seasons. 
A)  The country produces less oil than it agreed to. 
B)  The country produces lower-quality oil rather than higher-quality oil. 
C)  The country produces more oil than it agreed to. 
D)  The country closes down oil wells for routine maintenance during peak holiday seasons.

Question 11

Governments create barriers to entry with licenses or other regulations that limit entry.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is TRUE?
I. It is easier to form a cartel for a product with few substitutes.
II. Cartels that are backed and supported by the government tend to have less power.
III. Cartels are more likely to collapse the more firms there are in an industry.

Accepted Answer

A)  I only 
B)  II only 
C)  I and III only 
D)  II and III only 
A)  I only 
B)  II only 
C)  I and III only 
D)  II and III only

Question 13

Which of the following statements is TRUE?

Accepted Answer

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. 
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 14

Without government support, cartels tend to break down over time.

Accepted Answer

A) True 
 B)False

Question 15

It is easier to maintain a cartel for ________ than for ________.

Accepted Answer

A)  services; natural resources 
B)  natural resources; manufactured goods 
C)  products with lots of substitutes; products without substitutes 
D)  copper; nutmeg 
A)  services; natural resources 
B)  natural resources; manufactured goods 
C)  products with lots of substitutes; products without substitutes 
D)  copper; nutmeg

Question 16

Use the following to answer questions:
Figure: Competitive Market  
-(Figure: Competitive Market) Refer to the figure. If the market is competitive, price and output in the market would be:

Accepted Answer

A)  P1 and Q1. 
B)  P1 and Q2. 
C)  P2 and Q1. 
D)  P2 and Q2. 
A)  P1 and Q1. 
B)  P1 and Q2. 
C)  P2 and Q1. 
D)  P2 and Q2.

Question 17

The basic tendency of cartels is to increase output and reduce prices.

Accepted Answer

A) True 
 B)False

Question 18

The high prices charged by cartels:

Accepted Answer

A)  serve as a barrier to entry, allowing the cartel to earn above-normal profits. 
B)  give an incentive for new firms to enter the industry, causing an expansion of industry output and lower prices. 
C)  reduce the incentive for increased conservation. 
D)  All of the answers are correct. 
A)  serve as a barrier to entry, allowing the cartel to earn above-normal profits. 
B)  give an incentive for new firms to enter the industry, causing an expansion of industry output and lower prices. 
C)  reduce the incentive for increased conservation. 
D)  All of the answers are correct.

Exam 15: Oligopoly and Game Theory

A dominant strategy is a strategy that a player should take only if the other player cheats.

Cartels may tend to collapse and lose their power because of new entrants.

Use the following to answer questions: Figure: Competitive Market -(Figure: Competitive Market) Refer to the figure. If all firms in the market form a successful cartel, price and output in the market would be:

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

OPEC is a(n) ________ of oil-exporting countries.

In a competitive market, each firm earns ________ economic profits, whereas firms in a successful cartel will earn ________.

Cartel member strategy can be like a prisoner's ______ game.

Tactic collusion occurs when firms:

If every member of OPEC produces beyond quota, then cartel members:

What does it mean when an OPEC member cheats?

Governments create barriers to entry with licenses or other regulations that limit entry.

Which of the following statements is TRUE? I. It is easier to form a cartel for a product with few substitutes. II. Cartels that are backed and supported by the government tend to have less power. III. Cartels are more likely to collapse the more firms there are in an industry.

Which of the following statements is TRUE?

Without government support, cartels tend to break down over time.

It is easier to maintain a cartel for ________ than for ________.

Use the following to answer questions: Figure: Competitive Market -(Figure: Competitive Market) Refer to the figure. If the market is competitive, price and output in the market would be:

The basic tendency of cartels is to increase output and reduce prices.

The high prices charged by cartels:

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

In a competitive market, each firm earns economic profits, whereas firms in a successful cartel will earn .

It is easier to maintain a cartel for than for .