A(n) ____ is an arrangement among several producers to obey output restrictions to increase their joint profits.
A. oligopoly
B. cartel
C. quota restriction
D. union
The correct answer and explanation is:
The correct answer is B. cartel.
A cartel is an arrangement among several producers or companies in an industry to collaborate rather than compete with each other. The primary goal of a cartel is to manipulate the market in such a way that all members can maximize their collective profits. This often involves setting output restrictions, such as agreeing on production quotas, pricing policies, or other tactics to reduce competition. By doing so, cartels aim to create a more stable and profitable environment for their members.
Cartels are typically formed in oligopolistic markets, where a few firms dominate the industry. In such markets, firms may realize that it is in their best interest to cooperate rather than engage in cutthroat competition. By working together, they can reduce market volatility, control prices, and prevent new competitors from entering the market.
However, cartels are generally illegal in many countries due to their anti-competitive nature. They can lead to higher prices for consumers, reduce innovation, and result in unfair market conditions. Antitrust laws and regulatory bodies, like the Federal Trade Commission (FTC) in the United States, often intervene to break up or penalize cartels in order to maintain healthy competition in the marketplace.
In contrast, other options like oligopolies or unions are different. An oligopoly refers to a market structure where a few firms control most of the market share, but they may not necessarily engage in cartel-like behavior. A union is a labor organization formed to represent workers’ interests, usually in the context of employment, rather than colluding with other producers in a market. Quota restrictions refer to limits on production or imports but do not involve collaboration among producers like a cartel does.