Question

The Organization of the Petroleum Exporting Countries (OPEC) reduces production by 10 percent, and the growth rate of the world economy begins to escalate. How will the simultaneous occurrence of these events affect the equilibrium price and quantity in the world petroleum market?

(A) Price will increase, but quantity will remain unchanged.
(B) Price will increase, but quantity is indeterminate.
(C) Quantity will increase, but price is indeterminate.
(D) Both price and quantity will increase.

Answer 1

When OPEC reduces production and the world economy grows, it will result in a higher equilibrium price and an uncertain change in quantity in the world petroleum market.

Step-by-step explanation:

When the Organization of the Petroleum Exporting Countries (OPEC) reduces production by 10 percent, it causes a decrease in the supply of petroleum in the world market. At the same time, if the growth rate of the world economy begins to escalate, it leads to an increase in the demand for petroleum. Based on the basic principles of supply and demand, these simultaneous events will result in a higher equilibrium price and an indeterminate change in quantity. The increase in demand due to economic growth will push the price up, but the decrease in supply will cause an uncertain change in quantity.