IMT Covid19 Amit Shah.pdf - Name Amit Shah Question 1 Name...

Name Amit Shah
Question 1
Name and describe the phenomenon:
International cartel/Oligopoly
Oligopoly is when a small number of firms collude, either explicitly or tacitly, to restrict
output and/or fix prices, in order to achieve above normal market returns.
Here small group of countries (13 nos.) are reducing oil production (supply)
Advantages:
Advantage for countries who have oil storage space concerns (because of very low demand in
pandemic results in record surplus oil).
Advantage for oil producers as they set price, gets more profit.
Disadvantages:
No choice for consumers than to opt for whatever set oil price.
Why OPEC reduce oil supply?
Due to pandemic, huge reduction in oil demand across world. Hence to avoid surplus oil
production and hence to avoid loss due to excess inventory of oil and to control oil price, they
reduced oil supply.
What was the desired outcome?
Desired outcome was no surplus oil inventory and need of excess oil storage space as well as
not much reduction in oil price due to very low demand in pandemic.

Change in the supply and demand curves of oil:
Supply curve will shift towards left (as demand is low, supply is reduced to maintain price.)
Demand curve will shift towards left (as demand is low, supply is reduced to maintain price.)
Change in market equilibria:
Market equilibria point on intersection of both curves will be shifted towards left.