1. Cartels are when there are only a few main suppliers of a good and these prod

Question

1. Cartels are when there are only a few main suppliers of a good and these producers get together and make agreements to act like a monopoly – that is, restrict output and raise prices – to the detriment of consumers and society at large. But, they make a lot of money, so they do it anyway. Many mineral resources, such as alumina, copper and graphite, are only found in a few places on the planet. In theory, the producers of these mineral resources could form cartels, restrict output and jack up prices. Why has this not really been a big problem?

Explanation / Answer

This is because these mineral resources are not consumed in large quantities by consumers. Their demand is very limited and thus is very elastic.

If producers of these resources form a cartel and charge very high prices, the minimal demand which exists will fall further and producers would end up with minimum sales and profits.

Unlike other resources like gas and petroleum, whose demand is very high, it is successful for firms to form a cartel and charge high prices and make profits.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.