Petrol market - Essay Example

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Macro And Micro Answer 1: As a result of the prevalence of greater number of accidents on the road of Poland, due to many factors, people are less attracted to travel by road. This is greater number of road accidents creates greater fear for the people of getting injured or even dead…
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Download file to see previous pages 105). The amounts of external costs incorporate the direct physical, psychological, as well as emotional damage to others. Along with this, treatment costs are sometimes borne by the third parties (who are directly affected by the Alcohol consumption) by means of private or public insurance. It has been estimated by researchers that the total amounts of costs associated with the alcohol consumption resulting from welfare as well as health services, and also from insurance, enforcement, as well as penal costs and also from loss of costs of production accumulate to the total social cost by the amount of 1–3% of GDP in different European countries, including Poland. These amounts of loss of GDP by creation of negative effects of car accidents on the generation of greater amount of social costs are creating negative externalities to the people of the country (Bielinska-Kwapisz and Mielecka-Kubien, 2010, p. 1). As an outcome of the higher level of road accidents people are getting scared of traveling by road and thus they are expected to demand lesser amount of petrol. This reduces the demand for oil given the price of the petrol. Hence, the demand curve for petrol will shift down from AD1 to AD2 (Figure 1). Thus the equilibrium market price of petrol will fall and the producers will end up producing lesser amounts of output, selling at lower level of price and thus making lesser amount of profit. This also hampers the consumers by reduction in the amount of sales tax generated from the sales of petrol. This reduction in tax earning of the government reduces the amount of government spending on the development of road infrastructures and creates the negative externality to the consumers (Veal, 2002, p. 190). The externality is considered to be negative due to the fact that greater levels of accidents by some of the consumers to lack of proper road protections and infrastructures, which are to be implemented by the government, consumers are getting worse off. And also this fact is regarded as externality because of the fact that the generation of greater amount of negative effects upon the utility level of the consumers has not entirely been reasoned with the inefficient behavior of the people, in general. Rather these negative effects are largely generated by the lack of efficient government intervention into the process of development of higher degree of secured and well-protected road infrastructure Batta, 2008, p. 81). However this negative externality is also related to the misbehavior of the consumers of alcohol also. Greater accidents are made by the drunken car drivers for which the innocent people are paying the price in terms of their lives. This fact is also regarded as the negative externality to a large number of people (Bielinska-Kwapisz and Mielecka-Kubien, 2010, p. 5). Figure 1: Negative externality in the Petrol market Answer 2: Figure 2: Tax on petrol and reduction in negative externality The level of negative externality can easily be removed with the help of greater level of tax imposed on the petrol consumption. This higher level of tax on the purchase and use of petrol will increase the amount of tax revenues earned by the government of the country under consideration. This higher volume of tax revenues will thus give the government of the country to make higher amount of public expenditure on the developmen ...Download file to see next pagesRead More
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