IIA Certified Internal IIA-CIA-PART3 Questions & Answers

• Question 931:

  Which of the following is the most significant reason that domestic governments and international organizations seek to eliminate cartels?

  A. The increased sales price reduces the amount of corporate tax revenues payable to the government.

  B. True competition keeps prices as low as possible, thus increasing efficiency in the marketplace.

  C. Small businesses cannot survive or grow without government protection.

  D. The economic stability of developing countries depends on a global free market.

  Correct Answer: B

  A cartel is an organization of sellers (e.g., the oil cartel OPEC) who undertake joint action to maximize members' profits by controlling the supply, and therefore the price, of their product. Under the laws of many nations, such collusive conduct is illegal when engaged in by firms subject to those laws. The reason is that, as a result of the monopolistic and anticompetitive practices of cartels, supply is lower, prices are high, competition is restrained, and the relevant industry is less efficient. Accordingly, governmental and international organizations seek to protect consumers and the health of the domestic and global economy through anti-cartel efforts.