Supply and Demand

OPEC Simulation Mr. Jones Global Issues – Periods 2 & 8 Thursday, October 25, 2007

What is OPEC? OPEC stands for the Organization of Petroleum Exporting Countries. OPEC works to regulate worldwide prices on oil. OPEC members sell their products to the United States, Western Europe and Asia. By working together, they regulate how much oil is available for sale and thus the price. Petroleum = Oil

Simulation Procedure Your group represents an OPEC member country. You will be given a game sheet. On this sheet, which we will review in a moment, you keep track of how much oil you sell, the price that you get for it, and then your total profit for each year (turn). In order to earn a point, you must reach your yearly earnings target. This information is listed on your sheet and should be kept confidential. Your group must elect a spokesman to talk to other member countries.

Brazil Number of untapped barrels of oil that exist under Brazil: 12 Million Maximum barrels of Oil that can be produced per year: 2 Million Earnings target for each turn: $20 Million Points 1Point each turn that you reach your yearly earnings target 5Points if you reach your yearly earnings target 7 out of 10 turns 1Point for every 1 million barrels of Oil on reserve at the end 10 turns. 1Additional Point for each turn when your round’s earnings exceed $30 million. 2Additional Points for each turn when your round’s earnings exceed $35 million. Point Value of Reserves at Start of Game: Turns # of Barrels Produced Price Per Barrel Total Earnings Reach Earnings Target? Total Points Earned in Round Barrels Left in Reserve Total Points from Earnings: Total Points from Reserves: Total Points from Game: Sample Game Card

Tips Remember -- While you are a member of OPEC, your first goal is to win! This is the same goal that member countries have: to maximize profits and meet their earnings targets. You should discuss your strategy together as a class and within your own groups. When it comes time for you to sell your oil that is done via a secret ballot with the oil baron (Mr. Jones). Your ballot should list your country name and the number of barrels of oil that you are selling.

Economic Principle: Collusion “Collusion" takes place within an industry when rival companies cooperate for their mutual benefit. Companies work together to set prices for consumer. Prices are no longer dictate by the rules of supply and demand, where companies compete with each other for customers and thus have to price competitively. Is this fair for the consumer?

Economic Principle: Free Rider Effect The “free rider” effect takes place when a group colludes. Often, one member of alliance works to his or her own individual benefit and takes advantage of the fact that he or she knows what the other agents involved are playing to do (due to collusion). The free rider than takes advantage of the artificial price set by his or her otherwise would- be competitors and uses it to his or her own gain.