Question

Please answer this ASAP: The crude oil market is considered a global market, where prices from different crude oil streams tend to move together. OPEC, however, has been effective exerting upward pressure on oil prices at various times since its inception. Which of the following statements is true?

The US's oil production from shale will insure that the US will become the market leader and displace OPEC.

Change in future oil prices will only be impacted by China and India's demand for oil.

OPEC operates more effectively as a cartel when it is at lower spare capacity levels.

None of the above.

Answer 1

Climate change is a challenging and a drastic problem. Common policies for resisting climate change (e.g., taxes or quotas) assume perfectly competitive markets to attain the First Best, while in reality many pollution-intensive markets are not perfectly competitive.The firms with market power act strategically to handle prices to their advantage. When tradable licences are thrusted, dominant firms manipulate both licence and output prices. When a world carbon tax is thrusted, OPEC may increase or decrease the oil price depending on whether there is threatening entries. Even before a world carbon tax is thrusted, OPEC strategically increases the oil price to prevent it. When a global emission target is chosen by a region unilaterally, OPEC manipulates prices to go up, which extremely decreases leakages and shifts abatement costs from the regulated regions to the unregulated regions.

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