The New York Times (Nov. 30, 1993) reported that \"the inability of OPEC to agre

Question

The New York Times (Nov. 30, 1993) reported that "the inability of OPEC to agree last week to cut production has sent the oil market into turmoil . . . [leading to] the lowest price for domestic crude oil since June 1990." True False Statements The members of OPEC were trying to agree to cut production so they could save more oil for the future OPEC was unable to agree on cutting production because each country has an incentive to cheat on any agreement. The newspaper also noted OPEC's view "that producing nations outside the organization, like Norway and Britain, should do their share and cut What does the phrase "do their share" suggest about OPEC's desired relationship with Norway and Britain? OPEC would like Norway and Britain to keep their production levels high OPEC would like Norway and Britain to act competitively OPEC would like Norway and Britain to join the cartel

Explanation / Answer

Answer 1:

The members of OPEC were trying to agree to cut production so they could save more oil for the future. - False.

OPEC was unable to agree on cutting production because each country has an incentive to cheat any agreement - True.

Explanation: The main objective of OPEC behind cutting oil production has been to artificially increase the oil price and no to save oil for the future. Also, it faces difficulty in reaching to an agreement as each party has the incentive to cheat and gain a higher payoff rather than honoring the cartel.

Answer -2: OPEC would like Norway and Britain to join the cartel.

Explanation: Norway and Britain are not in OPEC. OPEC wants to create a cartel to cut production of oil to increase oil price. However, this objective will remain unfulfilled if outsiders like Britain and Norway keeps producing more. So, OPEC wants Britain and Norway to join the cartel.

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