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OPEC and the supply and demand for oil

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i. Consider the supply and demand for oil. Starting from a point where supply and demand are in equilibrium, explain with the use of a diagram how a global recession is likely to affect the equilibrium price and quantity of oil bought and sold. How do the slopes of the supply and demand curves affect your analysis?

ii. What objectives are pursued by members of the OPEC cartel? Discuss what actions they can take to achieve these objectives.

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Solution Summary

A diagram showing the effect of a global recession on the equilibrium price and quantity of oil, followed by a description of OPEC's objectives and policies.

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i. See the attached diagram. A global recession will decrease the demand for oil. The demand curve for oil will shift to the left, causing both equilibrium price and quantity to decrease. The slopes of the supply and demand curves will determine the magnitude of the decreases. For example, if the supply of oil is ...

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