G202 COMPREHENSIVE STUDY GUIDE 2026
QUESTIONS WITH CORRECT SOLUTIONS
GRADED A+
◉External Costs. Answer: A firm's production imposes costs on a
third party without their consent
- Firm's supply (MPC) under-estimates the true production costs
- From the view of efficiency too many units are produced, causing
society to incur a net cost
-A cost on other businesses
◉External Cost and Taxation. Answer: - Government will tax to
decrease supply and increase consumer prices
- Set the tax = MEC at the efficient quantity (Qe)
◉De Beers Business Model. Answer: De Beers is a cartel - a
collection of diamond mines and diamond sellers
◉Collusive Game (DeBeers). Answer: The members of De Beers
collectively agree to restrict the number of diamonds released to the
world market to raise the value of their diamond assets
,◉Collusion Risk (DeBeers). Answer: The cartel is not always stable
as there can be a strong incentive for a member to cheat for a one-
shot gain
- In the case, we see that Russia, Zaire, and Israel have all deviated
from their agrred upon quotas of diamonds to try and take
advantage of short-term returns
- We also see that Russia and Angola have fully defected from the
cartel
◉Great Market Power De Beers. Answer: - De Beers acts as if it was a
monopoly
- Diamond sellers, merchants, side holders
◉Central Selling Organization (CSO). Answer: - Enforcement group
that punishes cheating
- The glue that holds the cartel together
- The CSO has all the power within its members relations
- "Take it or leave it" offer where the price and quantity offered to
each De Beers Seller is fixed
- Enforces the collusive arrangement
◉Big risk of cartels. Answer: - Members have the urge to cheat for a
one-time gain
, - Cartels are unstable
◉What country has the most diamond consumption?. Answer: US
and then Japan
◉Stockpiling Diamonds and Controlling Market Forces. Answer: -
Stockpiling is when De Beers takes diamonds out of the market,
locks them in a vault and pretends like they are not there
- Keep the assets dormant
◉What market forces can DeBeers control with stockpiling?.
Answer: Supply - when De Beers stockpiles its own diamonds
coming from its own mines
Demand - when De Beers acts as a "Buyer of Last Resort", buys
outside diamonds and then stockpiles those
◉De Beers and US Anti Trust Laws. Answer: - Antitrust laws make
monopolizing a market, cartels, excessive market power, and other
collusive arrangements illegal.
- "The reach of the U.S. antitrust laws is not limited, to conduct and
transactions that occur within the boundaries of the United States.
Anti-competitive conduct that affects U.S. domestic or foreign
commerce may violate the U.S. antitrust laws regardless of where
such conduct occurs or the nationality of the parties involved."
QUESTIONS WITH CORRECT SOLUTIONS
GRADED A+
◉External Costs. Answer: A firm's production imposes costs on a
third party without their consent
- Firm's supply (MPC) under-estimates the true production costs
- From the view of efficiency too many units are produced, causing
society to incur a net cost
-A cost on other businesses
◉External Cost and Taxation. Answer: - Government will tax to
decrease supply and increase consumer prices
- Set the tax = MEC at the efficient quantity (Qe)
◉De Beers Business Model. Answer: De Beers is a cartel - a
collection of diamond mines and diamond sellers
◉Collusive Game (DeBeers). Answer: The members of De Beers
collectively agree to restrict the number of diamonds released to the
world market to raise the value of their diamond assets
,◉Collusion Risk (DeBeers). Answer: The cartel is not always stable
as there can be a strong incentive for a member to cheat for a one-
shot gain
- In the case, we see that Russia, Zaire, and Israel have all deviated
from their agrred upon quotas of diamonds to try and take
advantage of short-term returns
- We also see that Russia and Angola have fully defected from the
cartel
◉Great Market Power De Beers. Answer: - De Beers acts as if it was a
monopoly
- Diamond sellers, merchants, side holders
◉Central Selling Organization (CSO). Answer: - Enforcement group
that punishes cheating
- The glue that holds the cartel together
- The CSO has all the power within its members relations
- "Take it or leave it" offer where the price and quantity offered to
each De Beers Seller is fixed
- Enforces the collusive arrangement
◉Big risk of cartels. Answer: - Members have the urge to cheat for a
one-time gain
, - Cartels are unstable
◉What country has the most diamond consumption?. Answer: US
and then Japan
◉Stockpiling Diamonds and Controlling Market Forces. Answer: -
Stockpiling is when De Beers takes diamonds out of the market,
locks them in a vault and pretends like they are not there
- Keep the assets dormant
◉What market forces can DeBeers control with stockpiling?.
Answer: Supply - when De Beers stockpiles its own diamonds
coming from its own mines
Demand - when De Beers acts as a "Buyer of Last Resort", buys
outside diamonds and then stockpiles those
◉De Beers and US Anti Trust Laws. Answer: - Antitrust laws make
monopolizing a market, cartels, excessive market power, and other
collusive arrangements illegal.
- "The reach of the U.S. antitrust laws is not limited, to conduct and
transactions that occur within the boundaries of the United States.
Anti-competitive conduct that affects U.S. domestic or foreign
commerce may violate the U.S. antitrust laws regardless of where
such conduct occurs or the nationality of the parties involved."
