Question 3. [6 marks]

Using the analysis done in Q2, we are now ready to discuss the Australian petrol market. For the purposes of this question, we will assume that the domestic petrol market is competitive. Use the demand and supply model to explain how the price of petrol is determined in the domestic market. Briefly discuss the factors that influence the supply of petrol (supply shifters) and the factors that influence the demand for petrol (demand shifters). Which of these factors do you think are responsible for the recent price dynamics in this market? Illustrate your answer on a graph, including all relevant supply and/or demand shifts and the corresponding changes in the equilibrium price and quantity