Impact of OPEC Cartel in Petrol Market Question Answer 2022

Running head: IMPACT OF OPEC CARTEL IN PETROL MARKET
Impact of OPEC Cartel in Petrol Market
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IMPACT OF OPEC CARTEL IN PETROL MARKET
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Table of Contents
Answer to question 1: OPEC cartel leads to higher petrol price.....................................................2
Answer to question 2: Explanation of the cartel operation of OPEC..............................................3
Answer to question 3: Policy dilemma leads to stagflationary........................................................3
Answer to question 4: Impact of the expansionary demand shock.................................................3
Answer to question 5: Role of Saudi Arabia to determine the oil price..........................................4
References........................................................................................................................................5

IMPACT OF OPEC CARTEL IN PETROL MARKET
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Answer to question 1: OPEC cartel leads to higher petrol price
Figure 1: Contraction in the petrol supply
Source: (Created by the author)
The members of OPEC intensively attempt to keep the petrol price by means of a cartel.
The objective of OPEC cartel is to enhance profits with the help of restraining supplied amount,
imposing trade barriers or fixing the market product price level (Juvenal and Petrella 2015). The
figure 1 depicts the situation where OPEC cartel limits the supplied amount of petrol owing to
intensify the market price. In this diagram, the petrol price is measured along the perpendicular
axis, whereas, quantity of petrol production is labeled on the horizontal axis. Initially, the market
produces equilibrium output of Q* corresponding to the price level of P*. Both supply and
demand get equal at that equilibrium level. Afterwards, the equilibrium level gets altered due to
curtailing in the petrol supply (Loutia, Mellios and Andriosopoulos 2016). The market
equilibrium reaches higher price level as the level of demand remains same. Meanwhile, the oil
E*
E
Q
P