Atmc Bus 102 Introduction to Economics Question 2022

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ATMC BUS102 INTRODUCTION TO ECONOMICS –
SEMESTER 2 2019

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Contents
Question 1...............................................................................................................................3
Question 2...............................................................................................................................3
Question 3...............................................................................................................................4
Question 4...............................................................................................................................4
Question 5...............................................................................................................................5
Reference................................................................................................................................6

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Question 1
Figure 1: the output control by the OPEC
(Source: Kreps, 2019)
When the OPEC decides to control the output the quantity does not go beyond that. The
figure above shows the control of output with the vertical line. The crude oil produced by the
OPEC nations is also used in the production of petrol in the market as well. In this case, as
the quantity produced is controlled, there develops a gap between the price paid by the
customers of the market and the cost of production of the sellers of the market (Pindyck and
Rubinfeld, 2015). Therefore, due to the control, the price of petrol increases in the market and
the profit margin of the sellers increases as well. Additionally, it also needs to be noted that
due to the decision of output control in the oil market society loses a part of the welfare
known as the deadweight loss. Nevertheless, this policy is often used by the OPEC nations to
increase the collective oil revenue of the OPEC nations.
Question 2
The cartel is the association and collaboration among the sellers in the market that helps in
keeping the price of the goods and services high. Due to the association, no single seller can
reduce the price of the products and increase market share. Cartel reduces the power of the
customers to reduce the prices of the goods and the services in the market as, the supply
reduces to 0 when the price reduces (Iossa and Martimort, 2015). In the case of OPEC, the
collaboration helps in many ways. The countries included in the OPEC collectively control
the output in the market so that there emerges an excess demand in the market which can