Petrol Prices in Australia

Petrol prices in Australia have been rising steadily through all of 2021/22. With fuel cost being one of the key components of the household budget, the rising price of petrol has received a lot of attention in the media as well as policymakers at the various levels of government. In this report you will investigate the factors that drive these changes in the petrol market as well as evaluate some of the policy proposals aimed at addressing the rising cost of petrol.
As we know, petrol is made from oil. Australia’s own production of oil is not sufficient for the needs of the domestic market. Consequently, much of the petrol is either imported from other countries or is produced domestically at the two domestic oil refineries in Geelong, VIC and Lytton, QLD, using the oil sourced from the global oil market.

Question 1 – Global Oil (20 Marks)
(a) Use the demand and supply model to discuss the factors that influence the supply of oil (supply shifters) and the factors that influence the demand for oil (demand shifters) in the global market (10 marks)
(b) Which of these factors do you think is the main reason for the recent price dynamics in the oil market? Explain. (5 marks)
Illustrate your answer on a graph, including all relevant supply and/or demand shifts and the corresponding changes in the equilibrium price and quantity. (5 marks)

Question 2 – Domestic Petrol (30 marks)
(a) What type of market structure is the petrol industry in Australia? Explain. (10 marks)
(b) Use the demand and supply model to discuss the factors that influence the supply of petrol (supply shifters) and the factors that influence the demand for petrol (demand shifters) in the domestic market. (10 marks)
(c) Which of these factors is do you think is the main reason for the recent price dynamics in this market? (5 marks)
Illustrate your answer on a graph, including all relevant supply and/or demand shifts and the corresponding changes in the equilibrium price and quantity. (5 marks)

Question 4 (30 marks)
Federal government has cut the fuel excise tax for six months to reduce the price of petrol in Australia. For the purposes of this question assume that the petrol market is competitive and that the excise tax is paid by the suppliers.
(a) Use the demand and supply model to discuss how will the proposed policy (reduction in the fuel excise tax) affect the equilibrium in the domestic market for petrol. (10 marks)
(b) What are the benefits and costs of this policy? (15 marks)
Illustrate your answer on a graph, including all relevant supply and/or demand shifts and the corresponding changes in the equilibrium price and quantity. (5 marks)

You should answer each question on a new page. No need to follow the format of a formal essay. Your answers must be typewritten, graphs can be drawn using a suitable software. Marks will be deducted for poor grammar, spelling mistakes, and poor presentation.
Please do NOT copy paste graphs, pictures or tables found in other publications online. Marks will be deducted for graphs or other material copied directly from online sources.
Harvard style throughout and a list of references must be provided at the end of the report. These might include newspaper articles, research reports, data sources etc. References must be presented in alphabetical order.
PLease use the files attached to answer all the questions above.

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