ECO401 Economics GDB 2 Idea Solution Spring 2011 9 June 2011

[Vuhelper]

The major oil producing countries had made a cartel named “OPEC” (oil producing and exporting countries) in 1960. OPEC exports oil to rest of the world; there are significant problems for entrance in the market for oil. In which market structure this case falls and why the demand curve of oil is relatively inelastic?
NOTE: your answer must not exceed from 50 words.

[Vuhelper]

Market structure: oligopoly

Oil Industry lies in the oligopolistic market structure which has few no of sellers in the market and people are bound to fulfill their needs through this limited supply, so price rise does not effect much on their demand. secondly the oligopolists are well aware of moves. That's why demand curve of oil is relatively inelastic.