Question 1

A market dominated by a small number of firms is called a(n):

Accepted Answer

A)  oligopoly. 
B)  natural monopoly. 
C)  monopoly. 
D)  network market. 
A)  oligopoly. 
B)  natural monopoly. 
C)  monopoly. 
D)  network market.

Question 2

If anything, a cartel is likely to ________ and ________ power over time.

Accepted Answer

A)  strengthen; gain 
B)  collapse; lose 
C)  go bankrupt; then reorganize under bankruptcy law and gain 
D)  operate in competitive markets; price discriminate to gain 
A)  strengthen; gain 
B)  collapse; lose 
C)  go bankrupt; then reorganize under bankruptcy law and gain 
D)  operate in competitive markets; price discriminate to gain

Question 3

Cartels in manufactured goods are difficult to maintain because other firms can enter the market and easily produce substitute products.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  disunion. 
B)  cartel. 
C)  co-op. 
D)  Bertrand monopoly. 
A)  disunion. 
B)  cartel. 
C)  co-op. 
D)  Bertrand monopoly.

Question 5

It is easy for a cartel to behave monopolistically.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is NOT a feature of the prisoner's dilemma?

Accepted Answer

A)  It explains why cartels fail. 
B)  It describes how producers can lock themselves into a suboptimal outcome by pursuing their own self-interest. 
C)  It shows a dominant strategy for each of the players. 
D)  It explains why there is so much recidivism. 
A)  It explains why cartels fail. 
B)  It describes how producers can lock themselves into a suboptimal outcome by pursuing their own self-interest. 
C)  It shows a dominant strategy for each of the players. 
D)  It explains why there is so much recidivism.

Question 7

Diamonds have been able to keep prices high primarily through

Accepted Answer

A)  successful advertising. 
B)  successful cartel behavior. 
C)  misinformation. 
D)  new diamond discoveries. 
A)  successful advertising. 
B)  successful cartel behavior. 
C)  misinformation. 
D)  new diamond discoveries.

Question 8

Cartels for natural resources tend to be ______ than cartels for manufactured goods.

Accepted Answer

A)  more cumbersome 
B)  less cumbersome 
C)  more successful 
D)  less successful 
A)  more cumbersome 
B)  less cumbersome 
C)  more successful 
D)  less successful

Question 9

Barriers to entry are factors that:

Accepted Answer

A)  decrease costs to new firms entering the market. 
B)  increase costs to new firms entering the market. 
C)  increase costs to existing firms in the market. 
D)  decrease costs to existing firms in the market. 
A)  decrease costs to new firms entering the market. 
B)  increase costs to new firms entering the market. 
C)  increase costs to existing firms in the market. 
D)  decrease costs to existing firms in the market.

Question 10

Game theory is the study of:

Accepted Answer

A)  random decision making. 
B)  strategic decision making. 
C)  cartel decision making. 
D)  decision making allowing for irrational behavior. 
A)  random decision making. 
B)  strategic decision making. 
C)  cartel decision making. 
D)  decision making allowing for irrational behavior.

Question 11

OPEC is a:

Accepted Answer

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. 
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.

Question 12

The prisoner's dilemma describes situations where the pursuit of individual interest leads to a group outcome that is in the interest of everyone.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

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. 
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.

Question 14

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 15

In April 2011, Procter & Gamble and Unilever received fines of 315 million euros by the European Commission for fixing the price of laundry detergent in eight European countries. They admitted to this cartel, which resulted in a 10 percent discount in the fines. The 3-year investigation started because of a tip-off by another competitor, Henkel, who was also part of the price-fixing scheme. Henkel received no fine because of its cooperation with investigators. Besides the fines, how did investigators make maintaining this cartel difficult to continue?

Accepted Answer

A)  by offering a 10 percent discount on the fine if the parties admit to wrongdoing 
B)  by investigating the cartel for 3 years so they could prosecute 
C)  by reminding consumers that laundry detergent has a lot of long-run substitutes 
D)  by waiving the fine for just Henkel, which encouraged Henkel to cheat 
A)  by offering a 10 percent discount on the fine if the parties admit to wrongdoing 
B)  by investigating the cartel for 3 years so they could prosecute 
C)  by reminding consumers that laundry detergent has a lot of long-run substitutes 
D)  by waiving the fine for just Henkel, which encouraged Henkel to cheat

Question 16

Oligopolies are:

Accepted Answer

A)  too small to affect industry output. 
B)  large enough to change industry output and affect market prices. 
C)  not able to influence the market price, but they can increase or decrease industry output. 
D)  able to earn higher profits than monopolies. 
A)  too small to affect industry output. 
B)  large enough to change industry output and affect market prices. 
C)  not able to influence the market price, but they can increase or decrease industry output. 
D)  able to earn higher profits than monopolies.

Question 17

Loyalty programs increase monopoly power making the demand curve more inelastic and increasing prices.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following describes how cartel members cheat?

Accepted Answer

A)  They use inferior inputs in production to save money. 
B)  They steal production technologies from other firms. 
C)  They produce more output than they promised. 
D)  They fail to declare profits earned in foreign countries to avoid paying taxes. 
A)  They use inferior inputs in production to save money. 
B)  They steal production technologies from other firms. 
C)  They produce more output than they promised. 
D)  They fail to declare profits earned in foreign countries to avoid paying taxes.

Question 19

Antitrust laws:

Accepted Answer

A)  give the government the power to tax the trust funds of the children of rich families. 
B)  ensure that everyone keeps his or her promises. 
C)  give the government the power to prohibit or regulate anticompetitive business practices. 
D)  offer subsidies for cartels. 
A)  give the government the power to tax the trust funds of the children of rich families. 
B)  ensure that everyone keeps his or her promises. 
C)  give the government the power to prohibit or regulate anticompetitive business practices. 
D)  offer subsidies for cartels.

Question 20

Cartels can be upheld because cheating is not profitable when other countries keep their promise to abide with the agreement.

Accepted Answer

A) True 
 B)False

Exam 15: Oligopoly and Game Theory

A market dominated by a small number of firms is called a(n):

If anything, a cartel is likely to ________ and ________ power over time.

Cartels in manufactured goods are difficult to maintain because other firms can enter the market and easily produce substitute products.

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

It is easy for a cartel to behave monopolistically.

Which of the following is NOT a feature of the prisoner's dilemma?

Diamonds have been able to keep prices high primarily through

Cartels for natural resources tend to be ______ than cartels for manufactured goods.

Barriers to entry are factors that:

Game theory is the study of:

OPEC is a:

The prisoner's dilemma describes situations where the pursuit of individual interest leads to a group outcome that is in the interest of everyone.

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

Which of the following is TRUE?

Oligopolies are:

Loyalty programs increase monopoly power making the demand curve more inelastic and increasing prices.

Which of the following describes how cartel members cheat?

Antitrust laws:

Cartels can be upheld because cheating is not profitable when other countries keep their promise to abide with the agreement.

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

If anything, a cartel is likely to and power over time.