To explain the operation of OPEC in term of demand and supply model.

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Answer 1

Question

Chapter 1A.5, Problem 1TTA

To determine

To explain the operation of OPEC in term of demand and supply model.

Expert Solution & Answer

Explanation of Solution

The following figure shows the effects on supply and demand:

EBK INTERMEDIATE MICROECONOMICS AND ITS, Chapter 1A.5, Problem 1TTA

In the case of the oil market, when supply decreases, the response depends on the time horizon. The operation of OPEC varies in the short-run and in the long run.

Fig A. shows that when the demand and supply is inelastic, then the shift in supply curve (S₁ to S₂) leads to a greater increase in price.

However, in the long run, when supply and demand is elastic, then shift in supply curve (S₁ to S₂) in fig b. leads to a small increase in price (P₁ to P₂). Thus, in the shortrun, the price increases to at a greater degree as compared to the long run.

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Students have asked these similar questions

Suppose that the world price of oil is roughly $90.00 per barrel and that the world demand and total world supply of oil equal 34 billion barrels per year (bb/yr), with a competitive supply of 20 bb/yr and 14 bb/yr from OPEC. Statistical studies have shown that the long-run price elasticity of demand for oil is -0.40, and the long-run competitive price elasticity of supply is 0.40. Using this information, derive linear demand and competitive supply curves for oil. Let the demand curve be of the general form Q=a-bP and the competitive supply curve be of the general form Q=c+dP, where a, b, c, and d are constants. The equation for the long-run demand curve is A.Q=47.50-0.15P. B.Q=13.50-47.50P. C.Q=47.50-P. D.Q=47.50+0.15P. E.Q=13.50-0.15P.

The opening statement on the website 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 these goals, OPEC attempts to coordinate and unify petroleum policies by raising or lowering its members’ collective oil production. However, increased production by the United States, Russia, Oman, Mexico, Norway, and other non-OPEC countries has placed downward pressure on the price of crude oil. Please explain: To achieve these goals of stable and fair oil prices, what must OPEC do to maintain the price of oil at its desired level? How easy is it for OPEC to achieve this goal?

Suppose that the world price of oil is roughly $50.00 per barrel and that the world demand and total world supply of oil equal 34 billion barrels per year (bb/yr), with a competitive supply of 20 bb/yr and 14 bb/yr from OPEC. Statistical studies have shown that the long-run price elasticity f demand for oil is -0.40, and the long-run competitive price elasticity of supply is 0.40. Using this information, derive linear demand and competitive supply curves for oil. Let the demand curve be of the general form Q = a - bP and the competitive supply curve be of the general form Q = c+dP, where a, b, c, and d are constants. The equation for the long-run demand curve is O A. Q=47.50 -0.27P. O B. Q=13.50 -0.27P. OC. Q=47.50-P O D. Q=47.50+ 0.27P. O E. Q=13.50-47.50P. The equation for the long-run competitive supply curve is O A. Q=12.00 + 47.50P. OB. Q=12.00 -0.16P. OC. Q 8.00+ 0.16P. O D. Q=8.00+ 0.27P. O E. Q=12.00 +0.16P.

Answer 2

Question

Chapter 1A.5, Problem 1TTA

To determine

To explain the operation of OPEC in term of demand and supply model.

Expert Solution & Answer

Explanation of Solution

The following figure shows the effects on supply and demand:

EBK INTERMEDIATE MICROECONOMICS AND ITS, Chapter 1A.5, Problem 1TTA

In the case of the oil market, when supply decreases, the response depends on the time horizon. The operation of OPEC varies in the short-run and in the long run.

Fig A. shows that when the demand and supply is inelastic, then the shift in supply curve (S₁ to S₂) leads to a greater increase in price.

However, in the long run, when supply and demand is elastic, then shift in supply curve (S₁ to S₂) in fig b. leads to a small increase in price (P₁ to P₂). Thus, in the shortrun, the price increases to at a greater degree as compared to the long run.

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Answer 3

Question

Chapter 1A.5, Problem 1TTA

To determine

To explain the operation of OPEC in term of demand and supply model.

Expert Solution & Answer

Explanation of Solution

The following figure shows the effects on supply and demand:

EBK INTERMEDIATE MICROECONOMICS AND ITS, Chapter 1A.5, Problem 1TTA

In the case of the oil market, when supply decreases, the response depends on the time horizon. The operation of OPEC varies in the short-run and in the long run.

Fig A. shows that when the demand and supply is inelastic, then the shift in supply curve (S₁ to S₂) leads to a greater increase in price.

However, in the long run, when supply and demand is elastic, then shift in supply curve (S₁ to S₂) in fig b. leads to a small increase in price (P₁ to P₂). Thus, in the shortrun, the price increases to at a greater degree as compared to the long run.

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Answer 4

Question

Chapter 1A.5, Problem 1TTA

To determine

To explain the operation of OPEC in term of demand and supply model.

Expert Solution & Answer

Explanation of Solution

The following figure shows the effects on supply and demand:

EBK INTERMEDIATE MICROECONOMICS AND ITS, Chapter 1A.5, Problem 1TTA

In the case of the oil market, when supply decreases, the response depends on the time horizon. The operation of OPEC varies in the short-run and in the long run.

Fig A. shows that when the demand and supply is inelastic, then the shift in supply curve (S₁ to S₂) leads to a greater increase in price.

However, in the long run, when supply and demand is elastic, then shift in supply curve (S₁ to S₂) in fig b. leads to a small increase in price (P₁ to P₂). Thus, in the shortrun, the price increases to at a greater degree as compared to the long run.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 1A.5, Problem 1TTA

To determine

To explain the operation of OPEC in term of demand and supply model.

Expert Solution & Answer

Explanation of Solution

The following figure shows the effects on supply and demand:

EBK INTERMEDIATE MICROECONOMICS AND ITS, Chapter 1A.5, Problem 1TTA

In the case of the oil market, when supply decreases, the response depends on the time horizon. The operation of OPEC varies in the short-run and in the long run.

Fig A. shows that when the demand and supply is inelastic, then the shift in supply curve (S₁ to S₂) leads to a greater increase in price.

However, in the long run, when supply and demand is elastic, then shift in supply curve (S₁ to S₂) in fig b. leads to a small increase in price (P₁ to P₂). Thus, in the shortrun, the price increases to at a greater degree as compared to the long run.

Answer 6

Chapter 1A.5, Problem 1TTA

To determine

To explain the operation of OPEC in term of demand and supply model.

Expert Solution & Answer

Explanation of Solution

The following figure shows the effects on supply and demand:

EBK INTERMEDIATE MICROECONOMICS AND ITS, Chapter 1A.5, Problem 1TTA

In the case of the oil market, when supply decreases, the response depends on the time horizon. The operation of OPEC varies in the short-run and in the long run.

Fig A. shows that when the demand and supply is inelastic, then the shift in supply curve (S₁ to S₂) leads to a greater increase in price.

However, in the long run, when supply and demand is elastic, then shift in supply curve (S₁ to S₂) in fig b. leads to a small increase in price (P₁ to P₂). Thus, in the shortrun, the price increases to at a greater degree as compared to the long run.

Answer 7

Chapter 1A.5, Problem 1TTA

To determine

To explain the operation of OPEC in term of demand and supply model.

Answer 8

Expert Solution & Answer

Explanation of Solution

The following figure shows the effects on supply and demand:

EBK INTERMEDIATE MICROECONOMICS AND ITS, Chapter 1A.5, Problem 1TTA

In the case of the oil market, when supply decreases, the response depends on the time horizon. The operation of OPEC varies in the short-run and in the long run.

Fig A. shows that when the demand and supply is inelastic, then the shift in supply curve (S₁ to S₂) leads to a greater increase in price.

However, in the long run, when supply and demand is elastic, then shift in supply curve (S₁ to S₂) in fig b. leads to a small increase in price (P₁ to P₂). Thus, in the shortrun, the price increases to at a greater degree as compared to the long run.