Question

PPL Finds Largest Gas Reserves in Pakistan Since Sui. Last year,PPL carried out a testing and
proved the presence of large gas reserves. For comparison,Sui has estimated reserves of 2
trillion cubic feet with a daily output capacity of about 604 million cubic feet.Drilling only one
reserve suggests that the entire block has the potential to supply 10.7 million cubic feet of gas
per day. This is the first significant discovery of gas reserves in Baluchistan since 2000. Pakistan can
save more than $900 million on the import bill if this gas reserves replace LNG, which costs
domestic consumers 100% more than Sui gas, according to an ex-PPL board director.

a)As a result of drilling the gas reserves,Pakistan moved from a point within its production
possibility curve to a point on its production possibility curve. Explain what is meant by economic efficiency.Analyze what happened to economic
efficiency in the country as a result of this movement.[12]

b)Analyze the existence of possible externalities due to gas drilling. Discuss possible
government intervention in the economy as a necessary and sufficient condition for
overcoming inefficiency in resource allocation.[13]

Answer 1

PPL Finds Largest Gas Reserves in Pakistan Since Sui. Last year,PPL carried out a testing and
proved the presence of large gas reserves. For comparison,Sui has estimated reserves of 2
trillion cubic feet with a daily output capacity of about 604 million cubic feet.Drilling only one
reserve suggests that the entire block has the potential to supply 10.7 million cubic feet of gas
per day. This is the first significant discovery of gas reserves in Baluchistan since 2000. Pakistan can
save more than $900 million on the import bill if this gas reserves replace LNG, which costs
domestic consumers 100% more than Sui gas, according to an ex-PPL board director.

a)As a result of drilling the gas reserves,Pakistan moved from a point within its production
possibility curve to a point on its production possibility curve. Explain what is meant by economic efficiency.Analyze what happened to economic
efficiency in the country as a result of this movement.[12]

b)Analyze the existence of possible externalities due to gas drilling. Discuss possible
government intervention in the economy as a necessary and sufficient condition for
overcoming inefficiency in resource allocation.[13]

Answer: gas reserve means that natural gas under depth of earth. Natural gas reserve found in depth in earth of Pakistan Baluchistan by drilling. Pakistan as a growing economy had the dire need for natural reserve and luckily found a huge reserve of natural gas in Baluchistan. It was the largest reserve in Pakistan. Pakistan export it to many countries and also used in own country for many purpose. After collecting such huge amount of natural gas Pakistan became more efficient . Pakistan is now in the 29th for holding such a huge of of natural gas.

Answer: drilling can cause disaster because drilling leads to generation of earthquake. Natural gas extraction is also harmful for environmental point of view. It does not mean that drilling have only negative externalities but it have positive externalities also. Positive side is that it Create jobs. Many labor need to do the work of drilling so create employment. Also the generation of natural resources leads to increase the productivity of the economy.

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