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A cartel is an explicit agreement among competing firms to fix prices

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New post 21 Jul 2017, 09:04
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New post 22 Jul 2017, 00:24
A little confused about how we go about finding the 'false' statement.

But from what I understand, Option 5 is true and option 6 is false
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New post 26 Jul 2017, 08:28
Could somebody please mention the OA?
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New post 26 Jul 2017, 14:51
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Option E - True
Option C - False



First we need to find two options that work or are valid. Then we can pick the most true and most false statements.

Option A - No cartel will last more than 100 years. - Too strong a language. There might be cartels that will last more than 100 years but we might never know that. This is ambiguous, hence eliminate

Option B - As long as the members do not cheat, a cartel cannot be broken.- Again, too strong a language. this suggests a guarantee but the cartel can break for reasons other than members cheating , hence eliminate

Option C - An effective system for preventing members from cheating would not increase the likelihood that a cartel would survive in the long-term. – Correct! This is what the passage implies. Keep.

Option D - Private cartels are not legal in most countries. - Out of scope and hence eliminate.

Option E – Cartels are inherently unstable and likely to fail in the long run. – Correct! This is what the passage says. Keep.

Option F – It is extremely difficult for competing firms to agree to fix prices, marketing, and production in the formation of a cartel. - We are not concerned with competing firms and formation of cartel, hence eliminate

From the passage it is very evident that Option E - Cartels are inherently unstable and likely to fail in the long run is a strong candidate for 'true'.
Option C says if a system can prevent cheating, cartels still wouldn't survive. This is not really true, in fact this is false. There could be a slight increase in survival of cartels if an effective system is put in place. Hence this is false.
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Re: A cartel is an explicit agreement among competing firms to fix prices  [#permalink]

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New post 28 Jul 2017, 08:37
Dear All,
here below is answer with explanations.
Quote:
The passage as a whole strongly suggests that few cartels last more than 4 or 5 years because of the
economic incentive that members have to cheat.
Option A - No cartel will last more than 100 years.
This is much too strong of a statement to be logically inferred from “very few known cartels have lasted
for more than 4 or 5 years.” It could be that one or more known (or unknown) cartels has indeed lasted
100 years, even though only 4 to 5 years is typical.
Option B - As long as the members do not cheat, a cartel cannot be broken.
This is too strong of a statement to be inferred from “The main issue is that the members of a cartel all
have an incentive to cheat and cut prices just a little in order to maximize their individual profits at the
expense of profits of the cartel as a whole.” There could be other issues. Perhaps new suppliers that are
not part of the market enter the cartel, or perhaps the cartel’s product is made technologically irrelevant.
Option C - An effective system for preventing members from cheating would not increase the
likelihood that a cartel would survive in the long-term. – Correct FALSE
The passage says that the main issue is that the members of the cartel have an incentive to cheat, so an
effective system for preventing cheating WOULD likely increase the likelihood that a cartel would survive
in the long run.
Option D - Private cartels are not legal in most countries.
The passage does not discuss legality. Although this statement is likely true, it is not something that can
be inferred from the passage.
Option E – Cartels are inherently unstable and likely to fail in the long run. – Correct TRUE
This can be directly inferred from “very few known cartels have lasted for more than 4 or 5 years” and
“The main issue is that the members of a cartel all have an incentive to cheat and cut prices just a little
in order to maximize their individual profits at the expense of profits of the cartel as a whole.” The
economic incentive to cheat is inherent in the nature of a cartel and makes it inherently unstable.
Option F – It is extremely difficult for competing firms to agree to fix prices, marketing, and
production in the formation of a cartel.
This choice is tempting, but the passage does not discuss the difficulty of forming a cartel agreement.
Although this statement is likely true in the real world, it is too extreme to infer language such as
"extremely difficult" from the passage.
Column 1: The correct answer is E.
Column 2: The correct answer is C. It is extremely difficult for competing firms to agree to fix prices,
marketing, and production in the formation of a cartel.

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Re: A cartel is an explicit agreement among competing firms to fix prices   [#permalink] 28 Jul 2017, 08:37
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