Your Economics Professor Has Probably Told You That There Will

question 28

Essay

Your economics professor has probably told you that there will be a final exam in your economics class.The main reason for this final exam is to make sure that everyone has an incentive to work hard, come to class and read the textbook.When the day of the examination comes, however, it seems as if everyone would be better off if the professor cancelled the exam.You wouldn't have to take the exam, and your professor wouldn't have to mark it.Do you think your economics professor is likely to cancel the exam? Why not? What economic idea does this illustrate?

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Definitions:

Cartels

Coalitions of independent businesses formed to regulate production, pricing, and marketing of goods to maximize collective profits.

Price Leadership

A market situation where one or more dominant firms set the price of goods or services, and other firms in the industry follow suit.

Kinked-Demand Curve Model

An economic theory suggesting that prices become rigid or sticky due to competing firms' responses to price changes.

Collusion

A secret agreement between firms in a market to fix prices, limit production, or divide markets, in order to reduce competition and increase profits.