Foreign Service Officer Test (FSOT) Practice Exam

What is OPEC an example of?

1. Monopoly

2. Cartel

3. Economic community

4. Free trade zone

The correct answer is: Cartel

OPEC, which stands for the Organization of the Petroleum Exporting Countries, is best described as a cartel. A cartel is a group of independent companies or organizations that come together to coordinate their production and pricing strategies to control the market and maximize their joint profits. In the case of OPEC, its member countries collaborate to regulate oil production levels in order to influence global oil prices. This arrangement allows OPEC countries to exert considerable control over the oil market, which is a crucial commodity for the global economy. By regulating output collectively, OPEC can prevent price fluctuations that might occur if countries operated independently in a competitive market. The other options do not accurately characterize OPEC. A monopoly refers to a single entity controlling the entire market for a product, while OPEC comprises multiple countries. An economic community typically involves a group of countries that agree to work together in a specific economic sector but does not specifically focus on price control and production limits as OPEC does. A free trade zone is a specific area where goods can be traded without tariffs or restrictions, which does not apply to OPEC’s primary function of regulating oil prices among its members.