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SUNY Empire State College Business Paper

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SUNY Empire State College Business Paper

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Writing Assignment 3: OPEC Summit

Key objective: exemplifying the limitations of the power of oligopoly due to short-term and long-term elasticities.

Setting: Imagine you are representing one of the members of the OPEC, and you are motivated by an increase of your revenue from the sale of crude oil. You have to compromise on current decision on possible output decrease as to stimulate the world price of gas. Please consider the historical relation of the reaction of the gas price at the pump to the world price of the crude oil per barrel. Please resort to the NYU STERN case on The Petroleum Market: 1970 – 2000 (via link provided below the assignment), but most of all to the research on the following issues in the summer of 2008 in the US and now, and the political debate on the energy crisis, environmental protection and renewable sources of energy.

Instruction: As usually, please complete the assignment discussing the relevant economics concepts and applying economic tools with supporting data for problem solving in this real-life imitating simulation, and include also a memo summarizing the points of agreement to be reached and followed by OPEC unanimously, and with the compliance in the forthcoming months.

Outline: Include in the discussion the following issues with data, as the basis for your common decision to be made:

  • demand patterns for crude oil in the World
  • the price elasticity of demand for gas in the US
  • the factors influencing the price elasticity of demand for gas in the US, and possible changes in this respect (behavioral patterns)
  • the impact of price changes (on different price levels) on the revenue of crude oil exporters
  • the income elasticity of demand for gas
  • the price elasticity of supply of gas
  • the effect on the market outcome, on the market equilibrium, and on the efficiency of the market
  • the effect on the international trade, state policies, and on the economy.

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