Responses to articles on fuel boycott and tax imposition on fuel price

ASSESSMENT TAST 2
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BUS102 Introduction to Economics
Assessment Task 2 – Responses to articles
Article 2: DUE via Safe Assign 5pm Sunday 5th May
Name:
Student ID no:
Tutor’s name:
“Article Title:
‘National fuel strike: Petrol price pain prompts fed-up motorist to
call for fuel boycott’by Kathy Sundstrom, Kylie Bartholomew and
Rob Blackmore,from ABC news from 24th October 2018. Available
at:
https://www.abc.net.au/news/2018-10-24/will-a-boycott-on-fuel-
make-it-cheaper-for-you/10395474”
Instructions:
Access the article at the URL given above and read it carefully. Answer the
questions and complete the diagrams in the spaces provided below. Use
full sentences. If you use any references other than the study guide and
the article, please list at least the URL of your source. Please read the
marking rubric provided in the separate file before answering the
questions. Total markfor this assignment is 15.

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Question 1
“According to the article, “the increase of the cost of fuel over the past
year was due to an increase in price of the crude oil”. Use the supply and
demand diagram below to illustrate and explain why.”
Fig. 1.1 The market for fuel
Fuel is made from crude oil. This, therefore, means that crude oil acts as a
raw material to fuel manufacturing and hence the price of fuel is
dependent on the price of crude oil. This is referred to as a direct
proportionality relationship. Assuming that fuel initial was sold at price P*
then quantity sold was Q*. Therefore an increase in the price of crude oil
will definitely lead to an increase in price oil and as a result the fuel price
shifts and rises from P* to P1. This leads to a decrease in quantity
demanded of fuel from Q* to Q1 as shown in the diagram above. Hence an

ASSESSMENT TAST 2
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increase in the price of crude oil would lead to a consequent increase in
price for fuel since fuel is made from the crude oil.
Question 2
“In the article Ms Lamont claims that “fuel is one of the most overtaxed
products in Australia”.Use the supply and demand diagram belowto
illustrate and explain the effects of an imposition ofa tax on the price of
fuel and identify the changes in consumer surplus and producer surplus,
the tax revenue and the dead weight loss due to the imposition of the
tax.”
Tax imposition causes market inefficiency. Tax increases the production
costs of producers and hence makes the selling of fuel less profitable. As a
result, suppliers are not willing to sell much fuel since it is less profitable.
This shifts the supply curve for fuel selling to the left from S to S1. As a
result, the market equilibrium is shifted and the price of fuel is raised from
P* to P1. The increase in price leads to a decrease in the quantity of oil
demanded from Q* to Q1. Therefore tax imposition causes deadweight loss
as shown in the diagram below which indicates a loss in both the producer
surplus and the consumer surplus but it is the producers who suffer huge
losses in real sense. Consumer surplus is decreased in that, consumer
would have to buy fuel at increased price of P1 in order to cater for the
imposed tax while on the other hand producer surplus is also decreased as
producers only receive a price equal to the producer revenue and the rest
up to price P* is paid to the government in form of taxes. Hence tax
imposition leads to market inefficiency which causes deadweight loss and