Microeconomics, Module 14: “Collusion, cartels, and regulation” (Chapter 11)

(Illustrative test questions to guide candidates when reviewing the text material.)

(The attached PDF file has better formatting.)


Question 14.1: Cartels

The Prisoner’s Dilemma shows that a cartel is unlikely to succeed unless

A.    There is an enforcement mechanism.
B.    Each firm has a dominant strategy.
C.    The market is free from government regulation.
D.    Entry into and exit from the industry are costless.
E.    Firms behave myopically.

Answer 14.1: A


Question 14.2: Prisoner’s Dilemma

If each party in a Prisoner’s Dilemma game acts in its self-interest, the outcome

A.    Must be efficient in accordance with the Invisible Hand Theorem
B.    May fail to be Pareto optimal.
C.    Is the same as if the prisoners had formed a cartel.
D.    Can not be predicted.
E.    Creates a wealth transfer from one prisoner to another.

Answer 14.2: B