Question

The use of petroleum products is thought to be one of the lead causes of pollution and climate change. One main use of petroleum products is as fuel for cars and other forms of transport. Discuss the pros and cons of taxing petrol to reduce pollution. 15marks.

Use graphs to explain.

Answer 1

Consuming petroleum products causes negative externality of consumption.It is genrally overused as people associate cars as luxury and even though public transport is available, cars are used. Pollution causes global warming that harms life overall on earth and cyclones, floods lead to loss of economic growth and pushes people in poverty. Petroleum leak also harms bio life. Eg. recently leak in Ambarnaya river- Russia.

Pros:

Petroleum is fuel to machines.It causes industries to work and generates jobs. It has also led to higher economic growth and brought many people out of poverty. This natural asset has led to many countries to prosper. Eg. Gulf countries. It is also easy to extract and use.

A few cons be corrected through taxing.

This can be corrected by putting tax on gasoline. Tax shifts supply curve to the left and as shown in the figure if taxes are imposed then quantity used may come down. More taxes may also reduce consumption. Negative advertsiement can also be the solution as people are made aware and then they reduce consumption on their own.Encouraging and subsidising other fuel resources will also help.

PetroleumUSAGE causes negative externality of consumption. Marginal private benefit (MPB) is more than marginal social benefit(MSB). It causes more harm to society. This leads to overallocation of resources and taxes are imposed along with negative advertisments so that demand shifts back to MSB curve.

This can be corrected by putting tax on. Tax shifts supply curve to the left and as shown in the figure if taxes are imposed then quantity may come down to Qopt. More taxes may also reduce conemuption. Negative advertsiement can also be the solution as people are made aware and then they reduce consumption on their own.Both these are tried by the government to correct market failures.