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OPEC Cartel Analysis

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Cartel Analysis
i) The Organization of the Petroleum Exporting Countries (OPEC) is an international cartel. Go to its website and answer the following questions in a 1200-1500 word double-spaced paper in APA format.
ii) What are OPEC's objectives?
iii) How does it meet those objectives?
iv) What countries are members of OPEC?
v) What percentage of world oil production comes from these nations?
vi) In what way is OPEC a cartel?
vii) What significant oil-exporting countries are not members?
viii) What has OPEC done to limit the effect of nonmember production on its pricing decisions?
ix) Should the US boycott OPEC for its pricing and output tactics? Why or why not?
x) Given that petroleum products are in limited supply, what do you recommend the US government should do to prepare for a shortage of gasoline? Explain.
xi) List between 3-5 substitutes for gasoline.
xii) List between 3-5 complements of gasoline.
xiii) Why do you suppose alternative fuel sources have not been successfully adopted in major US cities? Justify your answer

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OPEC's objectives can be deduced from the following citation from their website: "The OPEC Member Countries coordinate their oil production policies in order to help stabilize the oil market and to help oil producers achieve a reasonable rate of return on their investments. This policy is also designed to ensure that oil consumers continue to receive stable supplies of oil." That is, their objective is to coordinate production to ensure a higher level of profits for producers than that which would prevail in a free market. It meets this objectives by setting production quotas for its twelve members: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.
That is, all members are from countries in regions generally considered under-developed (even if some of these countries are doing relatively well due to their oil revenues). OPEC Countries account for only 40% of all crude oil production.1 Despite this, it is a cartel since producers come together to set production thus affecting the overall supply of oil and thus price. Furthermore, the quotas of the cartel act as signals for non-OPEC producers of oil such as the United ...

Solution Summary

Cartel Analysis
i) The Organization of the Petroleum Exporting Countries (OPEC) is an international cartel. Go to its website and answer the following questions in a 1200-1500 word double-spaced paper in APA format.
ii) What are OPEC's objectives?
iii) How does it meet those objectives?
iv) What countries are members of OPEC?
v) What percentage of world oil production comes from these nations?
vi) In what way is OPEC a cartel?
vii) What significant oil-exporting countries are not members?
viii) What has OPEC done to limit the effect of nonmember production on its pricing decisions?
ix) Should the US boycott OPEC for its pricing and output tactics? Why or why not?
x) Given that petroleum products are in limited supply, what do you recommend the US government should do to prepare for a shortage of gasoline? Explain.
xi) List between 3-5 substitutes for gasoline.
xii) List between 3-5 complements of gasoline.
xiii) Why do you suppose alternative fuel sources have not been successfully adopted in major US cities? Justify your answer

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See Also This Related BrainMass Solution

Explain the difference between a monopoly, an oligopoly and a cartel with examples

You have been contracted by an economic consulting firm to determine the economic structure and possible future actions of OPEC, the Organization of Petroleum Exporting Countries.

Using the Library, the Internet, and your course materials, find websites that offer this information and answer the following questions (Perloff, 2007).

1. Explain the difference between a monopoly and an oligopoly, and a cartel.
2. Provide an example of a monopoly, an oligopoly, and a cartel.
3. Discuss the welfare effects of monopolies and oligopolies.
4. How does game theory explain the interactions of firms within oligopolies and cartels?
5. Using your own words, discuss the economic purpose of OPEC. What has happened to oil prices over the past five years?
6. Based on your answers to the above questions, synthesize the information you have gathered and tell the economic consulting firm which actions you think OPEC will take over the next year.

Summarize your research findings.

Reference

Perloff, J. M. (2007). Microeconomics (4th ed.). New York: Pearson Addison Wesley.

Instructor Comments: Most people do well defining and explaining each of the market types, their differences and giving examples. Where many papers need more work is in describing welfare effects, and applying game theory to the behavior of firms in Cartels. Welfare effects are measure using consumer surplus and producer surplus.

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