Answer to Question #71106 in Microeconomics for Shouq

Question

Consider the continuous decline in oil price that has hit most of the oil producing economy across the globe, and members of Organization of Petroleum Exporting Countries (OPEC) will be having their meeting by 15th December 2017. As an economic expert, kindly advice OPEC on what needs to be done in order to reverse the continuous decrease in oil price

Answer 1

There are two possible reasons for the decline of oil prices. On the one hand, it can be caused by the decline of demand for oil. This factor can not be controlled by the state-members of OPEC. On the other hand, the decline of prices is caused by oversupply of oil. That is why an effective way to stop declining of prices will be to cut the supply of oil. This instrument is totally controlled by the state-members of OPEC.