Using an appropriate diagram, illustrate the effect of subsidy on the domestic petrol price in comparison with the world petrol price.Petrol remains affordable because it is subsidized by the...

Using an appropriate diagram, illustrate the effect of

subsidy on the domestic petrol price in comparison with the

world petrol price.

Petrol remains affordable because it is subsidized by the Government.

Asked on by azmunyza

2 Answers | Add Yours

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

Posted on

Affect of subsidy on the domestic petrol prices of petrol definitely lower the effective prices of petrol in a country. This tends to push up the total consumption of [petrol in that country. However, i must clarify that the question of subsidy on petrol can be quite misleading. While governments in some countries do subsidize petrol. However at the same time they may also collect heavy taxes on manufacture and sale of petrol. Such taxation may actually exceed the subsidy so that governments may still be making money on sale of petrol rather than losing money.

Anyway subsidy lowers the domestic market prices, but is has no direct impact on prices in other countries, as markets for petroleum in different countries by various types of trade barriers. However, increased consumption does lead to total increase in world crude oil demand, and therefore tends to push up world crude prices. This can then impact the cost of petrol for manufacturers in other countries and therefore change their petrol demand, supply, and prices.

user8584131's profile pic

user8584131 | eNotes Newbie

Posted on

oil prices at the current levels will not depend the demand for cars in Malaysia but if they continues to rise, demand for bigger engine cars would be affected

petrol remains affordable because it is subsidizes by the government. while high petrol prices may deter some people from buying a car with a higher cc engine, the impact would be minimal because those vehicles by the higher income group, have lower price elasticity of demand, analyst said.

the current petrol price is $2.05 per liter. the government is expected to unveil a new subsidy scheme by reducing subsidy, and align domestic prices closer to world prices


if price of petrol continues to rise, some consumers might become more prudent in their petrol consumption and would opt for smaller engine car and fuel-efficient cars, thus affecting sales of big engine cars, an analyst said.


consumers might complain about rising petrol prices (if happens) but without a reliable public transporation system owning a car is important.however petrol prices would not impact the sale of commercial vehicles, as they would be needed to conduct business, an analyst said adding that public transportation fars would eventually be increased as well.

Question

a..Petrol remains affordable because it is subsidized by the government. using an appropriate diagram, illustrate and explainthe effect of subsidy on the domestic petrol price.


B..As a result of a reduction in subsidy, the supply of petrol will fall. what are three other factors which could cause a decrease in the supply of petrol?

C....Regardless of high petrol price, the demand for cars in Malaysia is still very high. explain three factor that would cause this situation



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