The Organization of Petroleum Exporting Countries (OPEC) is a cartel that attempts to keep oil prices high by restricting output. As part of that process, each member nation is assigned a production quota; most members have nationalized their oil industry so that the government controls overall production. However, member nations routinely exceed their production targets. Why might OPEC often have difficulty keeping output low and prices high? Oil production costs differ greatly among OPEC members. More politically stable OPEC members (e.g., monarchies) have little incentive to take a long view and so often act to achieve short-run gains. It's very difficult for OPEC to punish cheaters. It's very difficult for OPEC to detect cheaters.

The Organization of Petroleum Exporting Countries (OPEC) is a cartel that attempts to keep oil prices high by restricting output. As part of that process, each member nation is assigned a production quota; most members have nationalized their oil industry so that the government controls overall production. However, member nations routinely exceed their production targets. Why might OPEC often have difficulty keeping output low and prices high? Oil production costs differ greatly among OPEC members. More politically stable OPEC members (e.g., monarchies) have little incentive to take a long view and so often act to achieve short-run gains. It's very difficult for OPEC to punish cheaters. It's very difficult for OPEC to detect cheaters.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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