Explain why OPEC is caught in a prisoner's dilemma?
What will be an ideal response?
If every member of OPEC cooperates and produces the low output level dictated by its quota, prices will be high, and the cartel will earn large profits. Once the price has been driven up, however, each member has an incentive to stop cooperating and to earn even higher profits by increasing output beyond its quota. Thus, it is rational for an individual member to unilaterally increase output to maximize its earnings. But if no country sticks to its quota, total oil output will increase, and collective profits will decline.
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A quota is
A) a tax imposed on imported goods. B) a legal limit on the amount of a good that can be produced by foreign owners of a firm located in a host country. C) a legal limit on the amount of a good that can be imported. D) an agreement between two countries in which the exporting country voluntarily agrees to limit its exports to the importing country.
Which of the following is the best example of investment as defined by economists?
A. A restaurant owner buys a freezer to store ingredients for the restaurant meals B. A college professor buys a truck to drive around in C. A business manager purchases stock on the New York Stock Exchange D. A worker deposits money into a long-term retirement account