Question

Cartels create deadweight loss.

true or false

Answer 1

True.

Cartels create deadweight loss.

Deadweight loss is the loss of economic effeciency that will occur when the equlibrium is not reached.

Cartel is a group of producers whose goal is to increase their profits.

An ideal cartel wants to restrict the quantity to increase the prices and hence the profits.Generally producers want to produce the quantity when MC=MR. But in cartel they tend to increase the price further above the equilibrium thus behaving like a monopoly. This increase in price leads to decrease in demand which is a deadweight loss.