Part A

1. Define a business in your own words.

2. List and briefly describe three types of business entities.

3. Describe the main difference between a business objective and a business strategy

4. Who are stakeholders? Provide two examples of internal and external stakeholders

5. What factors contribute to the growth and evolution of a business?

 Part B- Case Study Analysis

1. Identify the type of business entity presented in the case study.

2. List two business objectives that the company in the case study might have.

3. Identify two stakeholders of the company and describe their interests in relation to the
business.

4. Based on the case study, do you think the company is in the growth phase or evolution
phase? Justify your answer.
 Part C
1. What are the primary characteristics of an MNC?

2. Discuss the advantages and challenges faced by MNCs. How do they differ from
domestic companies?

3. Identify a real-world MNC and discuss its impact on its host and home countries.

4. How do business objectives evolve as a company grows and expands internationally?

5. How might stakeholders' interests change as a business transforms from a domestic

entity to an MNC?
The Power of Cartels
Case Study:

In 1960 OPEC, or the Organization of Petroleum Exporting

Countries, was formed by Venezuela, Iran, Iraq and Kuwait. Later
other major exporters such as Saudi Arabia joined the group. The
purpose of OPEC was to restrict the amount of oil produced and
exported. By restricting the production of oil, OPEC was able to
essentially fix oil prices and receive maximum profits from the sale of
this commodity.

In economic terms OPEC is a cartel. A cartel is an organization of

independent members that is able to create a monopoly over a given
industry or commodity. OPEC's member nations collectively control
two thirds of all known oil reserves in the world. Oil is one of the
world's most important commodities. The United States, as well as
many other industrialized nations, uses oil to run its factories,
transportation systems, power plants and other industries. Without an
inexpensive and available oil supply, the economy can contract to the
point of recession.

In 1973 OPEC began restricting the oil production of its member

nations. The price for oil immediately inflated and the member
nations profited greatly. Since industrialized nations were so
dependent on oil to run their industries, they were forced to pay the
higher prices and watch their own collective profits shrink. The effect
of OPEC's restrictions was felt throughout the world economy.
Inflation rose as almost every consumer good became more
expensive. From the price of gasoline at the pump, to the price of
white bread on the grocery store shelf, nearly all products became
more expensive to the point of crisis. At service stations in the United
States, long lines formed of people trying to buy gasoline for their
cars. Many service stations ran out of gasoline to sell, while others
rationed out the fuel by allowing each customer to buy only so much
at a time. As inflation rose, investment fell and job growth shrank.
The United States, as well as much of the world, was in the grip of an
economic crisis.

By 1981 the price of oil had risen to $35 USD and had affected
governmental policies. Many nations were encouraged to begin
producing what oil they could from their own supplies. Others began
stockpiling all the oil they could. Alternative energy sources were also
beginning to be explored. In addition, governments began putting
political pressure on OPEC nations to ease the restrictions. Yet all of
these methods of ending the world's extreme dependency on oil
essentially failed, and OPEC's restrictions were dropped because of
other factors.
The problem faced by any cartel is that of its members cheating in
order to capitalize on the high profit margins created by restrictions
on production. OPEC has had this problem since its inception.
Maintaining a cartel is difficult since it is in each member's short-term
interests to cheat and produce oil beyond the restrictions.
Another problem of cartels, including OPEC, is that of preventing
non-members from producing oil. OPEC does not include every oil-
producing nation and cannot control the amount of oil these nations
produce. Often non-member nations benefit from the high prices
created by OPEC but never have to make any of the sacrifices that
members do.

CS Question #1: How does OPEC meet the definition of a cartel?

CS Question #2: What effect did the OPEC restrictions on the

production of oil by its member nations have on the U.S. economy?

CS Question #3: What policies did governments form to deal with

the high price of oil?

CS Question #4: What are the difficulties in running a cartel?

Further Thought:

1. Why is the world so dependent on oil?

2. What did OPEC have to gain politically by controlling the
production of oil?
3. Despite the glaring problems of U.S. industries being almost
completely dependent on oil, little has changed in the federal
government's energy policy. Why? What changes, if any,
should be made?

Inelastic Product rising the price