Question 1

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

Accepted Answer

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

Question 2

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

Accepted Answer

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

Question 3

The United States uses ______ to prevent businesses from engaging in anticompetitive practices.

Accepted Answer

A)  fiduciary regulations 
B)  blue laws 
C)  antitrust laws 
D)  monetary and fiscal policy 
A)  fiduciary regulations 
B)  blue laws 
C)  antitrust laws 
D)  monetary and fiscal policy

Question 4

Which of the following explains why it is typically easier to maintain a cartel in a natural resource than in a manufactured good?

Accepted Answer

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

Question 5

A government-supported cartel usually means:

Accepted Answer

A)  lower prices. 
B)  higher quality of service. 
C)  more innovation. 
D)  higher prices. 
A)  lower prices. 
B)  higher quality of service. 
C)  more innovation. 
D)  higher prices.

Question 6

The prisoner's dilemma describes situations where the pursuit of:

Accepted Answer

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. 
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 7

OPEC is a cartel that:

Accepted Answer

A)  could not keep the price of oil high for very long. 
B)  is able to keep the price of oil high. 
C)  controls all the world's oil. 
D)  a U.S. government agency created to control the price of oil. 
A)  could not keep the price of oil high for very long. 
B)  is able to keep the price of oil high. 
C)  controls all the world's oil. 
D)  a U.S. government agency created to control the price of oil.

Question 8

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 9

Cheating pays when other firms ________ their promise.

Accepted Answer

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

Question 10

_____ cartels can move an industry from competition to pure monopoly.

Accepted Answer

A)  All 
B)  Most 
C)  Many 
D)  Very few 
A)  All 
B)  Most 
C)  Many 
D)  Very few

Question 11

Figure: Demand 2   Two firms in an industry act as a cartel, with each firm agreeing to charge a price of $16 and sell two units of output. If one of them cheats and produces two more units of output, the cheating firm's total revenue increases by ______ and the other firm's total revenue decreases by ______.

Accepted Answer

A)  $24; $4 
B)  $28; $14 
C)  $84; $32 
D)  $12; $8 
A)  $24; $4 
B)  $28; $14 
C)  $84; $32 
D)  $12; $8

Question 12

A price match guarantee and a promise to pay 10% of the difference reduces the incentive for firms to compete with lower prices.

Accepted Answer

A) True 
 B)False

Question 13

Scientists are working on techniques to create bacteria that excrete oil as waste. How might OPEC have contributed to this research?

Accepted Answer

A)  OPEC donated money to fund this research. 
B)  The high price of oil charged by OPEC made it profitable to invest in such research. 
C)  Several members of the Saudi royal family personally worked on this research. 
D)  OPEC is offering a prize to whoever can develop a substitute for oil. 
A)  OPEC donated money to fund this research. 
B)  The high price of oil charged by OPEC made it profitable to invest in such research. 
C)  Several members of the Saudi royal family personally worked on this research. 
D)  OPEC is offering a prize to whoever can develop a substitute for oil.

Question 14

Which of the following statements is TRUE?

Accepted Answer

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. 
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.

Question 15

The prisoner's dilemma is the negative counterpart to the invisible hand.

Accepted Answer

A) True 
 B)False

Question 16

Iran and Iraq disbanded from OPEC when engaging in war from 1980-1988.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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 19

Which of the following statements is TRUE with respect to economies of scale?
I. It is cheaper for 500 manufacturers to make 30,000 cars each.
II. It is cheaper for five manufacturers to make 3,000,000 cars each.
III. Bigger firms mean fewer firms.

Accepted Answer

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

Question 20

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

Accepted Answer

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. 
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.

Exam 15: Oligopoly and Game Theory

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

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

The United States uses ______ to prevent businesses from engaging in anticompetitive practices.

Which of the following explains why it is typically easier to maintain a cartel in a natural resource than in a manufactured good?

A government-supported cartel usually means:

The prisoner's dilemma describes situations where the pursuit of:

OPEC is a cartel that:

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

Cheating pays when other firms ________ their promise.

_____ cartels can move an industry from competition to pure monopoly.

A price match guarantee and a promise to pay 10% of the difference reduces the incentive for firms to compete with lower prices.

Scientists are working on techniques to create bacteria that excrete oil as waste. How might OPEC have contributed to this research?

Which of the following statements is TRUE?

The prisoner's dilemma is the negative counterpart to the invisible hand.

Iran and Iraq disbanded from OPEC when engaging in war from 1980-1988.

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:

Which of the following statements is TRUE with respect to economies of scale? I. It is cheaper for 500 manufacturers to make 30,000 cars each. II. It is cheaper for five manufacturers to make 3,000,000 cars each. III. Bigger firms mean fewer firms.

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

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.