Petrol prices in Australia have been rising steadily through all of 2021 and have reached new highs in March 2022. With
Posted: Sun May 08, 2022 10:04 am
Petrol prices in Australia have been rising steadily through all
of 2021 and have reached new highs in March 2022. With fuel cost
being one of the key components of the household budget, the rising
price of petrol has received a lot of attention in the popular
press as well as among the policymakers at the various levels of
government. In this report you will look into the factors that
drive these changes in the petrol market as well as evaluate some
of the policy proposals aimed at addressing the rising cost of
petrol.
Federal government is considering a temporary cut to the
fuel excise tax to reduce the price of petrol in Australia. See for
example: “Budget 2022: Temporary cut to fuel excise to slash petrol
prices” published at news.coma.au on March 21, 2022.
(https://www.news.com.au/finance/economy ... 652cebe244)For
the purposes of this question assume that the petrol market is
competitive and that the excise tax is paid by the
suppliers.
(a) Use the model developed in Q3 to predict how the
proposed policy (reduction in the fuel excise tax) will affect the
equilibrium in the domestic market for petrol. Illustrate your
answer on a graph, including all relevant supply and/or demand
shifts and the corresponding changes in the equilibrium price and
quantity.
(b) Evaluate this policy from the point of view of
social welfare.
What are the benefits of this policy?
What are the costs of this policy that will be borne by
all members of the society? Do you think this is a good policy
overall? Explain your answer.
of 2021 and have reached new highs in March 2022. With fuel cost
being one of the key components of the household budget, the rising
price of petrol has received a lot of attention in the popular
press as well as among the policymakers at the various levels of
government. In this report you will look into the factors that
drive these changes in the petrol market as well as evaluate some
of the policy proposals aimed at addressing the rising cost of
petrol.
Federal government is considering a temporary cut to the
fuel excise tax to reduce the price of petrol in Australia. See for
example: “Budget 2022: Temporary cut to fuel excise to slash petrol
prices” published at news.coma.au on March 21, 2022.
(https://www.news.com.au/finance/economy ... 652cebe244)For
the purposes of this question assume that the petrol market is
competitive and that the excise tax is paid by the
suppliers.
(a) Use the model developed in Q3 to predict how the
proposed policy (reduction in the fuel excise tax) will affect the
equilibrium in the domestic market for petrol. Illustrate your
answer on a graph, including all relevant supply and/or demand
shifts and the corresponding changes in the equilibrium price and
quantity.
(b) Evaluate this policy from the point of view of
social welfare.
What are the benefits of this policy?
What are the costs of this policy that will be borne by
all members of the society? Do you think this is a good policy
overall? Explain your answer.