Collusion makes firms better off because if they act as a single entity (a cartel) they can reduce output and increase their prices and profits. But some cartels have failed and others are unstable
Which of the following is a reason why cartels often break down?
A) Most cartels do not have a dominant strategy.
B) Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.
C) Members of a cartel may resent having to share their profits equally.
D) When a cartel is profitable the amount of competition it faces increases.
B
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The demand for cars in a certain country is given by: D = 20,000 - P, where P is the price of a car. Supply by domestic car producers is: S = 5,000 + 0.5P. Suppose the economy is closed. The equilibrium price of a car is ________ and equilibrium quantity is ________.
A. $8,000; 12,000 B. $12,000; 8,000 C. $6,000; 14,000 D. $10,000; 10,000
The forces of supply and demand:
A. will not provide an efficient level of public goods. B. lead to the efficient provision of public and private goods. C. overcome the free-rider problem. D. lead to the provision of too many public goods.