Deck 15: Poverty and Economic Inequality

Question 1

Which of the following statements is TRUE?

A)Cartels generally persist and are quite common.
B)Few cartels move an industry from competition to pure monopoly.
C)Cartels work better when there are more firms involved.
D)Cartels persist because the cartel members enforce their agreements.

Answer 1

B

Question 2

Figure: Competitive Market (Figure: Competitive Market) Refer to the figure. If all firmsin the market form a successful cartel, price and output in themarket would be:

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

Answer 2

C

Question 3

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

Answer 3

D

Question 4

Cartels are not always successful because:

A)their members have profit incentives to cheat on the agreement.
B)nowhere in the world are cartel agreements considered legal.
C)cartels face a lot of competition from monopolies.
D)All of the answers are correct.

Question 5

A(n) ________ is a group of suppliers who try to act togetherto reduce supply.

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

Question 6

A group of suppliers who tries to act as if they are a monopolyis called a(n):

A)network.
B)oligopoly.
C)cartel.
D)dominant strategy.

Question 7

Which of the following is NOT a reason why cartels collapse?

A)cheating by the cartel members
B)new entrants and demand response
C)government prosecution
D)increasing production costs

Question 8

(Figure: Competitive Market) Refer to the figure. If themarket is competitive, price and output in the market wouldbe:

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

Question 9

Which of the following industries would find it easier toestablish a cartel?

A)automobile manufacturing
B)retail clothing
C)agricultural products
D)book publishing

Question 10

Cheaters in cartels make ________ profit when the othercartel members ________ their promise.

A)more; break
B)less; keep
C)zero; break
D)more; keep

Question 11

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)All of the answers are correct.

Question 12

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.

Question 13

A cartel is a group of suppliers who act together in order to:

A)increase demand, raise prices, and increase profits.
B)increase supply, reduce prices, and increase profits.
C)increase demand, reduce prices, and increase profits.
D)reduce supply, increase prices, and increase profits.(True Answer )Correct

Question 14

OPEC stands for:

A)the Organization of Petroleum, Energy and Consumption.
B)the Organization of Petroleum Exporting Countries.(True Answer )Correct
C)the Outcome of Petroleum Energy Cooperation.
D)the Organization of Petroleum and Energy Corporation.

Question 15

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

A)a competitive firm.
B)a small firm in a competitive industry.
C)a monopoly.
D)buyers.

Question 16

Compared to a competitive market, firms operating in a cartelwill charge a price that is:

A)higher than the competitive price.
B)lower than the competitive price.
C)equal to their marginal cost of production.
D)equal to their average cost of production.

Question 17

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

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 18

Which of the following makes a cartel short-lived?

A)stable market demand
B)few firms in the cartel
C)cheating
D)contracting

Question 19

Which of the following statements is TRUE?
I) A cartel is a single firm with competitive market power
II)A cartel is a group of firms that practice pricediscrimination in competitive markets
III) A cartel is a group of firms that attempt to reduce marketoutput.IV. A cartel acts as if it were a monopolist in that market.

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

Question 20

In a competitive market, each firm earns ________ economicprofits, whereas firms in a successful cartel will earn________.

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

Question 21

(Table: Russia, Saudi Payoff Table) Refer to the table. What isSaudi Arabia's best strategy and associated payoff if Russiacooperates?

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

Question 22

(Table: Three-Country Oil Production) Refer to the table.Suppose that three countries are engaged in oil production.For simplicity, assume zero costs so that revenue equals profit.Assume that Country A cheats on the cartel agreement byproducing 200 more barrels than the other two countries.What is the resultant profit earned by Country A?

A)70,000
B)6,000
C)24,000
D)30,000

Question 23

(Table: Three-Country Oil Production) Refer to the table.Suppose that three countries are engaged in oil production.For simplicity, assume zero costs so that revenue equals profit.Suppose that the three countries have a cartel agreementwhere they attempt to mimic monopoly behavior. If eachcountry has the incentive to cheat, and does cheat, what willthe final market outcome be?

A)The market quantity will be 1,600 and the market price will be 40.
B)The market quantity will be 1,200 and the market price will be 60.
C)The market quantity will be 1,400 and the market price will be 50.
D)The market quantity will be 1,800 and the market price will be 30.

Question 24

(Table: Three-Country Oil Production) Refer to the table.Suppose that three countries are engaged in oil production.For simplicity, assume zero costs so that revenue equals profit.Assume that Country A cheats on the cartel agreement byproducing 200 more barrels than the other two countries.What is the resultant profit earned by each of the other twocountries?

A)20,000
B)30,000
C)70,000
D)24,000

Question 25

A strategy that has a higher payoff than any other strategy nomatter what the other player does is called a:

A)cartel strategy.
B)maximizing strategy.
C)valuable strategy.
D)dominant strategy.

Question 26

(Table: Market for Oil) Refer to the table. Suppose that thesecountries form a cartel and each country produces 8 MBD. If 9 of the cartel members cheat and produce 10 MBD while onecountry keeps its promise and maintains production at 8 MBDeach cheater would earn revenue of:

A)$375 million a day, while the non-cheating country would earn $300 million a day.
B)$375 million a day, while the non-cheating country would earn $360 million a day.
C)$400 million a day, while the non-cheating country would earn $300 million a day.
D)$400 million a day, while the non-cheating country would earn $360 million a day.

Question 27

Reference: Ref 15-4(Table: Payoff Matrix) Refer to the table. What is Player 2'sstrategy in this game?

A)always cooperate
B)always cheat
C)cooperate when Player 1 cooperates; cheat when Player 1 cheats
D)cheat when Player 1 cooperates; cooperate when Player 1 cheats

Question 28

(Table: Market for Oil) Refer to the table. Suppose that thesecountries form a cartel and each country produces 8 MBD. Ifone of the cartel members cheats by secretly pushing itsproduction back to 10 MBD rather than 8, total revenue forthe cheating country would:

A)increase from $360 million to $500 million a day.
B)increase from $400 million to $475 million a day.(True Answer )Correct
C)decrease from $380 million to $360 million a day.
D)remain unchanged at $400 million a day.

Question 29

(Table: Market for Oil) Refer to the table. Suppose that thesecountries form a cartel and each country produces 8 MBD. Ifone of the cartel members cheats by secretly pushing itsproduction back to 10 MBD rather than 8, total revenue forthe non-cheating countries would:

A)decrease from $400 million to $380 million a day.(True Answer )Correct
B)decrease from $360 million to $288 million a day.
C)increase from $400 million to $500 million a day.
D)remain unchanged at $380 million a day.

Question 30

(Table: Three-Country Oil Production) Refer to the table.Suppose that three countries are engaged in oil production.For simplicity, assume zero costs so that revenue equals profit.Assume that Country A cheats on the cartel agreement byproducing 200 more barrels than the other two countries.What is the new market price when Country A cheats on theagreement?

A)60
B)50
C)20
D)40

Question 31

Which of the following describes how cartel members cheat?

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.(True Answer )Correct
D)They fail to declare profits earned in foreign countries to avoid paying taxes.

Question 32

Cheating pays when other firms ________ their promise.

A)either keep or break
B)break
C)keep
D)withhold

Question 33

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

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

Question 34

The more successful a cartel is in raising the profits of thefirms in the cartel, the:

A)less likely there will be cheating.
B)more likely there will be cheating.
C)more competitive the cartel.
D)more likely there will be a price war.

Question 35

(Table: Three-Country Oil Production) Refer to the table.Suppose that three countries are engaged in oil production.For simplicity, assume zero costs so that revenue equals profit.If the countries create a cartel and agree to mimic monopoly-like behavior, what level of output would each firm produce?

A)1,200
B)400
C)200
D)700

Question 36

The prisoner's dilemma describes situations where the pursuitof:

A)all interests lead to a group outcome that is in the interest of no one.
B)all interests lead to a group outcome that is in the interest of everyone.
C)individual interest leads to a group outcome that is in the interest of no one.
D)individual interest leads to a group outcome that is in the interest of everyone.

Question 37

(Table: Payoff Matrix) Refer to the table. What is Player 1'sstrategy in this game?

A)always cooperate
B)always cheat
C)cooperate when Player 2 cooperates; cheat when Player 2 cheats
D)cheat when Player 2 cooperates; cooperate when Player 2 cheats

Question 38

A dominant strategy is a strategy that:

A)all players must follow.
B)has a higher payoff than any other strategy no matter what the other player does.
C)leads to one player's interests dominating the interests of the other players.
D)a player follows regardless of the strategies followed by other players.

Question 39

Table: Payoff MatrixThe following shows a payoff matrix with two players and twostrategies. The payoffs are listed in the order of (Player 1'spayoffs, Player 2's payoffs). (Table: Payoff Matrix) Refer to the table. What type of"game" does this payoff matrix represent?

A)cartel game
B)coordination game
C)prisoners' dilemma
D)cheating game

Question 40

(Table: Three-Country Oil Production) Refer to the table.Suppose that three countries are engaged in oil production.For simplicity, assume zero costs so that revenue equals profit.Assume that Country A cheats on the cartel agreement byproducing 200 more barrels than the other two countries.What is the new quantity sold by Country A?

A)900
B)400
C)1,400
D)600

Question 41

(Table: Oil Output) Refer to the table. The situation between Iraq and Iran issimilar to a:

A)calibration cramp.
B)prisoner's dilemma.
C)flippant switch.
D)cooperative equilibrium.

Question 42

(Table: Ozzie, Manny's Payoff Table) Refer to the table. Theequilibrium outcome is:

A)undefined in this game.
B)$80, $80.
C)$60, $60.
D)($20, $130) or ($130, $20).

Question 43

(Table: Russia, Saudi Payoff Table) Refer to the table. What isSaudi Arabia's best strategy and associated payoff if Russiacheats?

A)cooperate; $400
B)cheat; $600
C)cooperate; $800
D)cheat; $800

Question 44

The high prices charged by cartels:

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.

Question 45

Which of the following explains why the NBA cartel issustainable?

A)Team owners make more money but players make less money.
B)Access to the NBA league is the good that the cartel controls to keep its members from cheating.
C)NBA games compete against other professional and collegiate sports.
D)Consumers benefit from the salary cap that prevents rich teams from buying up all the great players.

Question 46

Major league basketball, the NBA, is cartelized to:

A)maintain high ticket price of the games.
B)keep down players' salaries.
C)reduce the competition of the teams.
D)prevent teams from exploiting players.

Question 47

Which of the following explains why it is typically easier tomaintain a cartel in a natural resource than in a manufacturedgood?

A)Natural resources are usually more valuable than manufacturing goods.
B)Natural resources are only found in certain places.(True Answer )Correct
C)Manufacturing goods are hard to replace.
D)Supply of natural resources tends to be more elastic than supply of manufacturing goods.

Question 48

Cartel agreements tend to fail:
I) if they produce manufactured rather than natural goods
II)if they produce natural rather than manufactured goods
III) in the long run as demand curves become more elastic.

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

Question 49

It is easier to maintain a cartel in a market for a(n) ________than in a market for a(n) ________.

A)intermediate good; final good
B)final good; intermediate good
C)natural resource; manufactured good (True Answer )Correct
D)manufactured good; natural resource

Question 50

Which of the following is TRUE?

A)The more substitutes a resource has, the more likely a cartel controlling such a resource will succeed.
B)The more widespread a resource, 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 51

(Table: Mary, Silvia Payoff Table) Refer to the table. Maryand Silvia are producers. If Silvia cooperates, what is Mary'sdominant strategy?

A)to cheat and earn 40
B)to cheat and earn 15
C)to cooperate and earn 20
D)to cooperate and earn 40

Question 52

(Table: Oil Output) Refer to the table. If both countries abide by the cartelagreement (i.e., not cheat):

A)each country earns $78.
B)each country earns $65.
C)Iraq earns $89 and Iran earns $60.
D)Iraq earns $60 and Iran earns $89.

Question 53

Table: Russia, Saudi Payoff TableSuppose that the oil market is dominated by two large firms, SaudiArabia and Russia. Both Saudi Arabia and Russia have twochoices or strategies: cooperate by cutting back production orcheat by increasing production. The payoff table below shows thepotential revenues associated with each firm's strategies. Forinstance, if Saudi Arabia cheats and Russia cooperates then thepayoff to Saudi Arabia is $1,000 and the payoff to Russia is $400. (Table: Russia, Saudi Payoff Table) Refer to the table. Thedominant strategies are:

A)cheat for both Russia and Saudi Arabia.(True Answer )Correct
B)cooperate for both Russia and Saudi Arabia.
C)cheat for Russia and cooperate for Saudi Arabia.
D)cooperate for Russia and cheat for Saudi Arabia.

Question 54

High prices maintained by a cartel usually make the cartel lesssuccessful because high price of the good:

A)leads to more conservation.
B)motivates demand to switch to substitutes of the goods
C)encourages a search for new supplies.
D)All of the answers are correct.

Question 55

The National Basketball Association is a:

A)natural resource cartel.
B)fixed-cost cartel.
C)buyer's cartel.
D)player's cartel.

Question 56

(Table: Ozzie, Manny's Payoff Table) Refer to the table. Which ofthe following statements is true?

A)Manny and Ozzie do not have dominant strategies.
B)Manny's dominant strategy is low price, and Ozzie's dominant strategy is high price.
C)Manny's dominant strategy is high price, and Ozzie's dominant strategy is high price.
D)Manny's dominant strategy is low price, and Ozzie's dominant strategy is low price.

Question 57

One reason cartels have limited power is that demand curvesbecome:

A)less elastic over time.
B)more elastic over time.
C)fragmented over time.
D)stable once the cartel is established.

Question 58

(Table: Mary, Silvia Payoff Table) Refer to the table. Maryand Silvia are producers. If Mary cheats, what is Silvia'sdominant strategy?

A)to cheat and earn 40
B)to cheat and earn 15
C)to cooperate and earn 20
D)to cooperate and earn 40

Question 59

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

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

Question 60

Reference: Ref 15-7(Table: Oil Output) Refer to the table. The equilibrium outcome is:

A)$78, $78.
B)$65, $65.
C)$89, $60.
D)$60, $89.

Question 61

Which of the following is the best example of a monopolisticcompetitive market?

A)diamonds
B)gas stations
C)restaurants
D)milk

Question 62

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

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

Question 63

Firms in monopolistic competitive industries:
I) sell their products at a higher price than if their industrywere strictly competitive
II)sell their products at the same price as if they were in amonopoly market
III) have a high incentive to innovate with new products andbetter quality.

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

Question 64

Figure: Monopolistic Competition (Figure: Monopolistic Competition) Refer to the figure.Suppose the figure represents a firm that operates in amonopolistically competitive market. In the long run youwould expect:

A)prices to increase.
B)demand to become more inelastic.
C)less quality and innovation.
D)more firms to enter the market.

Question 65

Which of the following statements regarding cartels isFALSE?

A)Cheating by cartel members is less profitable and easier to detect if there are fewer firms in the industry.
B)New entrants can be prevented when the cartel-controlled good is limited in supply.
C)Cartels should control natural resources that are rare and more valuable.
D)Cartels are more successful if they are backed by government and the power of the law.

Question 66

A government-supported cartel usually means:

A)lower prices.
B)higher quality of service.
C)more innovation.
D)None of the answers is correct.

Question 67

Which of the following laws makes cartel behavior illegal?

A)Monopoly Act of 1897
B)Sherman Antitrust Act of 1890
C)Sewon Act of 1955
D)Frame Act of 1910

Question 68

Which federal law makes most cartels in the United Statesillegal?

A)Interstate Commerce Act of 1901
B)Federal Reserve Act of 1914
C)Supreme Court case Johnson v.J.P.Morgan
D)Sherman Antitrust Act of 1890

Question 69

Which of the following is the best example of a firm operatingin an oligopoly market?

A)Walmart, a large retailer
B)ExxonMobil, one of the seven major refiners of oil (True Answer )Correct
C)McDonald's, a fast-food restaurant chain
D)a corn farmer in Oklahoma

Question 70

In an oligopolistic market, prices will tend to be closer to thecompetitive price:

A)the more government regulation there is in the market.
B)when the product is more distinguishable from its competitors.
C)the larger the size of the cartel.
D)the greater the number of sales.

Question 71

In some cases cartels are successful because:

A)the cartel produces a manufactured good with many substitutes.
B)the marginal costs of production are high.
C)the barriers to entry in the market are low.
D)the cartel controls access to a key input.(True Answer )Correct

Question 72

The Sherman Antitrust Act of 1890:

A)limits cartel-like behavior in the United States.(True Answer )Correct
B)serves to limit anticompetitive behavior by foreign firms that the U.S.trades with.
C)has illegalized all cartels in the United States.
D)All of the answers are correct.

Question 73

The NBA is a like a cartel because:

A)the owners use the NBA league structure to collectively restrict the salaries of players.
B)it is the most popular professional sport.
C)ticket prices are high.
D)teams use average cost pricing.

Question 74

Prices in an oligopolistic market are likely to be:

A)equal to that of a monopoly market.
B)lower than that of a monopoly market.(True Answer )Correct
C)equal to that of a competitive market.
D)lower than that of a competitive market.

Question 75

(Figure: Monopolistic Competition) Refer to the figure.Suppose the figure represents a firm that operates in amonopolistic competitive market. In this market in the longrun you would expect:

A)both demand and price to stay the same.
B)both demand and price to increase as unprofitable firms leave the industry.
C)demand to decrease and price to fall to the point that P = AC.
D)demand to shift left and decrease price to the point that P = MC.

Question 76

Which of the following statements is TRUE?

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)All of the answers are correct.

Question 77

In 2010, which was the location of more advertisement for theiPad?

A)Charlottesville, Virginia
B)Berlin, Germany
C)Silicon Valley, California
D)These markets were equally saturated with iPad ads.

Question 78

The milk cartel in the United States:

A)ended when the government prosecuted the owners of four major milk producers who conspired to raise prices.
B)is made legal and enforced by the government, and any firm that breaks the cartel is fined.
C)frequently breaks down because of firm cheating.
D)was put out of business because of new entrants.

Question 79

(Figure: Monopolistic Competition) Refer to the figure.Suppose the figure represents a firm that operates in amonopolistic competitive market. In the long run you wouldexpect price in this market to:

A)stay the same.
B)increase as unprofitable firms leave the industry.
C)decrease to the point that P = AC.
D)decrease to the point that P = MC.

Question 80

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

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