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home / study / business / economics / economics questions and answers / 1. the opening statement on the web site of the organization of petroleum exporting countries ... Question: 1. The opening statement on the Web site of the Organization of Petroleum Exporting Countries (OP... (1 bookmark) 1. The opening statement on the Web site of the Organization of Petroleum Exporting Countries (OPEC) says its members seek “ . . .to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.” To achieve this goal, OPEC attempts to coordinate and unify petroleum policies by raising or lowering their collective oil production. However, increased production by Russia, Oman, Mexico, Norway, and other non-OPEC countries has placed downward pressure on the price of crude oil. To achieve its goal of stable and fair oil prices, what must OPEC do to maintain the price of oil at its desired level? a. Maintain its current output. b. Reduce output. c. Increase output. Why might this be difficult for OPEC to do? a. Member profits will be lower, so each member may be more willing to cheat on the collusive production levels. b. Member countries will be unable to determine an optimal collective production level. c. Member countries will not be able to make the necessary adjustments in their production levels.
Explanation / Answer
Answer:- To achieve its goal of stable and fair oil prices, what must OPEC do to maintain the price of oil at its desired level?
Correct option:- Reduce output
Answer:- Why might this be difficult for OPEC to do?
Correct Answer:- a. Member profits will be lower, so each member may be more willing to cheat on the collusive production levels.
Reason:- In order to deal with the competition from the rivals such as Russia, Oman, Mexico, Norway, and other non-OPEC countries, it is inevitable for OPEC to increase their production. Due to increased production, the prices will go down resulting in lowering the profits of OPEC countries and this will entice the members to cheat on a collusive level fo production and thus it will be difficult to obtain.
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