Cartels are when there are only a few main suppliers of a good and these produce

Question

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 . Bu t, 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

Cartels have the following drawbacks:

1. Creation of monopoly: Cartels lead to creation of monopoly. Monopoly leads to high prices, restrictive output, ,inefficiency, artificial scarcities.

2. Excess capacity: Cartels tends to over produce goods which remain unsold during periods of recession.

3. Inefficiency: Cartels are assured of profits and have no incentive to be effiicient in production.

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