Describe the source of tension between cooperation and self-interest in a market characterized by oligopoly. Use an example of an actual cartel arrangement to demonstrate why this tension creates instability in cartels
The source of the tension exists because total profits are maximized when oligopolists cooperate on price and quantity by operating as a monopolist. However, individual profits can be gained by individuals cheating on their cooperative agreement. This is why cooperative agreements among members of a cartel are inherently unstable. This is evident in the problem OPEC experiences in enforcing the cooperative agreement on production and price of crude oil.
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If an increase in government spending of $20 million results in a $100 million increase in GDP, then the spending multiplier is
A) 0.2. B) 2.5. C) 5. D) 20.
If airports decide to compensate people who suffer from airplane noise because their homes are under the runway approaches, to whom should they offer monetary payments? The people who
A) actually live in affected residences. B) are bothered by the noise but themselves never travel on commercial airlines. C) both own affected residences and live in them. D) either own affected residences or live in them. E) own affected residences whether or not they live in them.
In the long-run, a firm in monopolistic competition has
A) a price that exceeds its average total cost. B) a price that exceeds its marginal cost. C) an average total cost that exceeds its price. D) a marginal cost that exceeds its price.
Banks make use of the federal funds market in part to
A) pay their tax liabilities. B) manage liquidity risk. C) deal with moral hazard. D) deal with adverse selection.