Question
Petrol and the welfare consequences of taxes: a. [Basic static analysis of tax] Draw a simple model of the retail market for petrol in Australia.
Petrol and the welfare consequences of taxes:
a. [Basic static analysis of tax] Draw a simple model of the retail market for petrol in Australia. Petrol is taxed in Australia (and in most other countries). Evaluate the welfare consequences of a tax on petrol. Is this an example of government failure or a consequence of market failure?
b. [Extended dynamic analysis and reflection] Petrol prices have recently jumped, and this appears to be directly linked to what's happening in Ukraine (Hutchens, 2022). Explain what has occurred, and evaluate the likely effect on (i) consumer expenditure, (ii) revenue for petrol retailers, (iii) government revenue. Who, if anyone, stands to benefit from this price shock? Some argue that petrol is too expensive, and that the government should cut petrol taxes (Worthington, 2022). Is this justifiable, based on economic reasoning?
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