Recently, the Indian government raised the number of LPG cylinders subsidized each year from 9 to 12. “A subsidy refers to assistance by the government to individuals or groups of individuals such as firms, consumers, industries or sectors of an economy.”(Tragakes, Ellie. Economics for the IB Diploma. Cambridge University Press, 2012.) There are several benefits as well as drawbacks to such a scheme.
The main stakeholders affected by this decision are the government itself and the citizens. The government will have to pay an extra 3,300 crore-4,000 crore. However the increased quantity output means that now about 97 per cent of the LPG consumers are now covered by the subsidy. Thus it has a negative impact on the government, it is beneficial for the low-income citizens, but it has no real impact on the rich citizens who can afford the cylinders anyway.
An increase in the number of subsidized LPG cylinders will result in a supply curve shift to the right and the equilibrium price of the LPG cylinders too falls. Thus although this is not a conventional subsidy diagram, in this case the government purposely increases supply to reduce the price (thus aiding citizens and acting as a subsidy). Also, the cost for the government is equivalent to (1258-414)*12 per family, as depicted by the shaded area in the diagram.
LPG is a necessity in every household for either cooking or heating. If subsidized, then it’ll become cheap and affordable for everyone. This will allow them to or save their money for other necessities that may not be subsidized.
Another benefit is that LPG is a more eco-friendly fuel than coal and other fossil fuels. Thus, by subsidizing it, the government is urging the citizens to use it rather than mor...
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... subsidies before the increased cap) to deal with. Thus, I think the money would be better spent if the cylinders were subsidized only for the low-income families.
In the short run, I believe such a scheme will have more positive impacts, as people will be able to spend money on other necessities, while their consumption of fuel will not increase much. However, I believe in the long run there will be more unfavorable consequences. including the overuse and wastage of fuel by families who have no incentive to save fuel. Thus, I do not feel that the increased cap is not a correct move by the government, as they have not made sure that the people who really need the subsidy are the ones getting it, and that there is no better alternative use for such a large sum of money.
Works Cited
(Tragakes, Ellie. Economics for the IB Diploma. Cambridge University Press, 2012.)
Stocking, A. (2011). Unintended Consequences of Price Controls: An Application to Allowance Markets. Journal of Environmental Economics and Management, 63, 120-136. doi: 10.1016/j.jeem.
The author proposes different partial solutions for the "oil problem": a surtax on gasoline consumption, development of mass transport and alternative energy sources, fuel efficiency. In the actual context, these propositions are more or less wishful thinking. A complete change of mind will only arrive when the oil price will reach astronomical heights and when all cheap oil sources will be dried up.
...self to not be such a good place for hard earned taxpayer money. It shows great signs of reducing of automobile pollution, decreased foreign oil dependency as well as steps towards being a greener society. On the reverse, the implicated price would be significantly higher, at a starting price of $3.95 per gallon, the induced miles per gallon in FFVs takes a huge hit and are the miles per gallon are significantly lower which would lead to an even higher estimated cost for consumers. Not to mention the production of corn ethanol draws a net negative energy loss due to ethanol’s weak energy output. This all meaning that more money goes in to get less energy out. Over all, ethanol is a great idea in the mindset of moving towards a greener society and becoming self-sustainable as a country, but proves to be a negative investment choice as far as a government subsidy.
Key regulations: According to the GAO, the two major regulations namely, the Environmental Protection Agency’s (EPA) and Department of Transportation’s (DOT) coordinated fuel economy and the greenhouse gas (GHG) vehicle emission standards, as well as EPA’s Renewable Fuel Standards (RFS) have contributed to declining petroleum-based fuel consumption. For some refiners, adherence to the RFS increased costs in the first half of 2013, although costs have significantly declined to some degree from their peak ( United States Government Accountability Office , 2014).
Fourth, getting rid of crude oil will lower the cost of filling up your car with fuel. Even though fuel is always in high demand, the ever-abundant sweat fuel will keeps prices at a bare minimum. The only expense is the refining process. People won’t ever worry that they don’t have enough money to fill up their tank. Sweat fuel will always be available and will always be affordable. As a results, the economy will improve over time.
...mpensation for transport is less severe on the consumer's budget. Consequently, Americans who save more money will also be able to better afford the costs of living, which reduces homelessness, a large problem in the U.S.
middle of paper ... ... Whether you believe this subsidizing is good or bad depends on whether you are a producer or consumer. No matter what, this policy has a large effect on the food market as well as the spending of taxpayer dollars. Either way, most people in the U.S. maintain an opinion on one side or the other.
...ls, power and diesel which have gone up compared with the previous year and the inability of manufacturers to pass on these increases to consumers.
With a gasoline-fueled vehicle, buying gas to operate your car is a never-ending process. With the high price change of gasoline and oil, operating a gasoline-fueled vehicle tends to be very costly. While there are some types of small gasoline vehicles that get much better gas mileage than larger vehicles, even the most powerful gasoline cars will normally desire a contribution every month. According to some experts the only way a mainstream market for green vehicles wills materlize is with a pronounced and prolonged rise in fuel prices. (Buss, 4)
“The Open Fuel Standard Act of 2013 is a Fiscal Policy that if passed would require each fleet of a manufacturer of passenger automobiles (including light-duty motor vehicles) to comprise at least: (1) 30% qualified vehicles in model year 2016, and (2) 50% qualified vehicles in model year 2017 and each subsequent year.” (https://www.govtrack.us/congress/bills/113/hr2493#summary) A qualified vehicle would be one that operates on natural gas, hydrogen, biofuels, E85, M85 or electric drive vehicles. This would be a giant step in the right direction if this were to be passed into law and it would have a huge impact on all automakers, especially the truck market.
The drastically increasing prices of fossil fuels and gasoline were making it harder for a middle income people to afford conventional vehicles in the near future. The gasoline is a natural resource which is reducing the supply of our reserves every second. In order to keep the fuel prices in control...
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.
...the higher-income people will pay for it at full market price, the government intervenes once again upon the economy.
to the green transportation revolution. But, how will the poor countries benefit from that change?
Fuels like coal, and oil that once were a fine innovation in creating energy are now rapidly deleting and one day will be gone forever; energy that won’t last is often referred to as non-renewable energy. Besides being set up to fail and become inefficient in the future, fossil fuel energy is not clean to use and poses several environmental complications. Coal, for instance is “the dirtiest of all fossil fuels. Coal combustion not only produces sulfur oxides and nitrogen oxides that contribute to acid rain and snow, it generates millions of tons of particulates that cause asthma and other respiratory diseases.” As with all usage of fossil fuels, it creates enormous amounts of carbon dioxide, which contributes to greenhouse gas. Not only are fossil fuels dirty, they also pose as a security risk and unforgiving on the American wallet. (Saini)