Discuss the market for gasoline and the Organization of Petroleum Exporting Countries (OPEC) role in determining price
What will be an ideal response?
The market for gasoline would be considered an oligopoly. There are a few countries that control the majority of oil that is produced in the world, allowing them to have some market power. These countries have formed a cartel called OPEC. The countries that form OPEC produce 43 percent of the world’s oil. OPEC nations have colluded to determine the optimal amount of production to maximize total profit in the industry. They do this by limiting production, so the price of oil remains above the marginal cost.
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Which of the following is NOT a reason why collusion may be hard to sustain?
A. Firms observe their rivals' prices only imperfectly. B. Marginal costs, and therefore agreed-upon prices, may differ among firms or products. C. Prices wars in practice may not conform to the predictions of the Bertrand model. D. The potential profits from collusion can be so high as to create an incentive not to undercut.
Which of the following is not an assumption of the linear breakeven model:
a. constant selling price per unit b. decreasing variable cost per unit c. fixed costs are independent of the output level d. a single product (or a constant mix of products) is being produced and sold e. all costs can be classified as fixed or variable
Given the strict quantity theory of money, if the quantity of money doubled, prices would
a. fall by half. b. double. c. remain constant. d. increase somewhat but less than double.
Mortgage-backed securities are:
A. investments that people bought based on the equity of their homes. B. tradable assets made up of packages of individual mortgages. C. assets that were purchased based on the leveraged value of people's homes. D. securities that are often purchased by homeowners.