ECO1000: Unleaded Petrol and the Policy Proposal-Economics Assignment

Internal Code:MAS46

Economics Assignment:

Question: In Australia, rising petrol prices have resulted in calls for the government to remove the excise tax of 40 cents per litre currently levied on producers of petrol.Answer the following questions about the market for unleaded petrol and the policy proposal. 1.Draw the demand and supply curves on an appropriately labelled graph. 2. Show the market price and quantity on your graph, with the tax in place. 3. Assuming the only tax levied in this market is the excise tax (levied on producers)of 40 cents per litre, graph the ‘net of tax’ supply curve on your graph. Note: ‘Net of tax’ is the supply curve without the 40c excise tax. 4. On your graph, show the market price paid by producers, the after-tax price received by producers (sellers) and the revenue received by government in the current situation. 5. Calculate the price elasticity of demand and the price elasticity of supply over the price range from 118 cents to 120 cents. Use either the ‘mid-point’ or ‘arc’ formula. 6. Using information from your work above, discuss the advantages and disadvantages of a policy to abolish the excise tax. In your discussion, refer to: (i) the benefits of the tax change to both purchasers and producers; (ii) the change in revenue to the government; (iii) possible externalities arising from the change; (iv) the importance of demand and supply elasticities for your conclusions; (v) possible effects on economic growth.