Why might an oil cartel's effectiveness be undermined during a recession but strengthened during an economic boom?
What will be an ideal response?
During a recession the overall level of economic activity is contracting which also has the effect of lowering or slowing the demand for oil. Under these circumstances there would be great incentive for members of the cartel to lower prices. By contrast an economic boom is likely to keep the cartel stronger than ever since demand for its products are rising and member firms will find it easier to continue to abide by their cartel agreements.
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Can a Nash equilibrium fail to be Pareto optimal? Can a Pareto optimal outcome fail to be a Nash equilibrium? Justify your answers using the Prisoners' Dilemma game.
What will be an ideal response?
Many professional sports athletes have incentive clauses in their contracts. These indicate that
A) the team owner has asymmetric information. B) the athlete might engage in moral hazard, which the team owner wishes to avoid. C) the athlete might engage in adverse selection, which the team owner wishes to avoid. D) the athlete has stronger negotiators.
An increase in demand means that:
A. the demand curve has shifted to the right. B. price has declined and, therefore, consumers want to purchase more of the product. C. given supply, the price of the product will decline. D. the demand curve has shifted to the left.
Refer to the diagrams. Other things equal, an interest rate reduction coupled with a rightward shift in curve A will:
A. shift curve B upward.
B. shift curve B downward.
C. have no effect on curve B.
D. reduce GDP.