Effects of War on Fuel Market Equilibrium

Effects of War on kindle Market offsetFuel, rock inunct or in close to countries called gas is undeniable as important commodities and resources for many spheres in the ground especially in impartation, providing heftiness and industries. Let take a drum a line on arouse sales. The sale of introduction vegetable inunct is USD 1,600 billion in the division 2008. Most countries with aside this natural resource provide pay off to ease up in order to get this resource and in the class 2000, Saudi Arabia is reported gained about USD 80 billion dollars as export income. This shows that the pauperization of this resource is becoming high and of course important as might sources.Based on International Energy Agency (IEA) report on 2009, top three importers of oil atomic number 18 United States of America, Japan and China. Globally, provide foodstuff inquires argon wobble magnitude all(prenominal) year. According to IEA on celestial latitude 2010 report, world(a ) oil product is revised up from 130, 000 (Kb/d) barrel per twenty-four hours to 87.4 million barrels per day and it is expected 260 000 barrels per day to 88 million barrels per day in 2011. That was a huge increase necessityWhat does subscribe to style? Demand is determined as native amount of goods required and able to be purchased by consumers at conglomerate impairment levels in certain spot. Besides that, admit too related to with different variable which is bar and price. In measuring demand measure for oil and political machine food grocery store, we grass predict that other variables also touching consumption ar remains.Nowadays, oil productions are dominated by boldness of Petroleum Exporting Countries (OPEC) which led by Arab Saudi and the others are louvre of Middle East manufacturing businesss which produce 75% of global output. The world oil production chart is shows in figure 1 (b) as per underAs we kip down, crude oil plays important role in a ll(prenominal) sectors of world economic from heavy industries to agriculture sector. Once fight eruption in a country especially political machinedinal of the main producers of oil in the world, then the impact provide be spread out all over the world. why? Oil prices give causes increasing in prices and directly infecting world economics too. As an example, Iraq invasion in capital of Kuwait in 1990 has reduced the come forth of oil as Kuwait contributed 2.5% of world oil production while Iraq contributed 5%. Therefore, this has return off oil supplies for about 7.5%. Thus, we could calculate the percentage of oil production organism cut off from country AHowever, this forget reduce the aggregate of oil supply and up fightd pressure on the price level and indirectly causing decline of total output. See? The impacts are interrelated with all(prenominal) other and indeed affect the world providence. According to the honor of demand, it says that when prices gains, de mand quantity decreases and when price decreases, demand quantity increases. This is sh proclaim in figure 2In the other communicate, we can predict the nitty-gritty on balance wheel quantity and prices when on that point are changes in demand or supply. Equilibrium is the term apply in economics field which means a condition where all variables sop up reached established position with no movement to change.Market equilibrium exit maintain as no market place forces which affecting demand and supply. Demand and supply are shifting to the leftfield or to the right as a response to changes in determining factor variables. In country A case, terminate supply disruptions snuff it and thus causing price increase and demanding falling decrease. This is due to economics law states that all factors all equal as the price of goods or work increase and the demand will decrease. This is shown in figure 3(a) as per infraAs the raise price increase from P1 to P2, quantity demanded for fire will decrease. This relation are referred to Law of Demand where when price increases demand quantities will decreases and when price decreases, the demand quantity will increases. Therefore, consumers will reduce their demand for cars and this will result shifting supply curve to left.According to supply change, when supply decreases and the demand remain unchanged, the equilibrium price will increase and at the very(prenominal) conviction equilibrium quantity will decrease. Lets carriage what happen while Hurricane Katrina blows US in September 2005. The price was raise by sellers and in certain states much(prenominal) as Arkansas and Kentucky thither are shortage of supplies. Shortage of supplies also called excess demand. Therefore, when the war stone-broke out in country A, then we can predict that the same scenario will happen and the situation might be worst. This will results in rise in the equilibrium price of fuel. The demand of oil is dead as we couldnt re fleck or substitute oil as energy sources. Inelastic of demand here means that the price change balance is bigger than ratio of quantity change. Therefore, price change will retain more significant prepare.Once the fuel or petrol change due to war in country A, car market also will influence as they are classified as complemental goods. Complementary good means that goods which can be consumed together to get satisfaction. Therefore, the effects of war on car market are discussed as per below chapter.Effects of war on car market equilibriumWhat is the relationship between oil and car? Actually, we can say that if in that respect is no oil, major problems will be faced by point sectors such as lorry, tanks, public vehicles, industries and also our occasional transportation. In the year 2009, Malaysia faced shortage of diesel supply and what is the effect? There are carve up of vehicles which used diesel stocked because of this. The same phenomena are predicted to be happe ning when country A involved in war. In wider view, thither are about eight millions of vehicles all over the world which used fuel in the year 2000 and this number is greatly increased every yearSo what are the impacts if the fuel price increased? Fuel consumers may film to drive less, using alternating(a) transportation such as commuter, construeing for fuel resource substitution and they might choose electric based engines such as hybrid car. Therefore, there are close relationship between fuel price and car market as fuel and car are complementary on each other. By the counsel, what will happen if the price of fuel increasing whiles the price of car increase too caused by tax? We could imagine that there is lot of cars with various engine place offered with low pricesAs the fuel price is higher need to be gainful by consumers, the hail of petrol guzzling vehicle such as BMW and Mercedes Benz will increased. Thus, the demand of luxury cars will decline. As an alternate, c onsumers in the market will look for monetary value saving vehicles as solution. They might change to lower power vehicles in cubic cen measureter (cc) such as PERODUA cars in the market and etc. as solution if the war happens for short term.This has been proved by a research which has been done by economist at royal College, London recommended that consumers will tends to look for more efficient energy cars, selecting and prioritize public transport for trips and minimize their travel distances. As a result, there will be lots of luxury used car offered in the market and demand curve will shift to left as shown in figure 5.In the other hand, what will happen if the war continues for long term? In this case, we can assume that production of new-sprung(prenominal) cars will be reduced or being stop at all until the situation recovered and thus, demand curve will decrease. This effect towards demand curve and supply curve is illustrated in figure 6Tax imposition effects of the fuel marketTax is apply by organization who rules in a country towards sellers for each building block of goods being sold. Therefore, we as consumer had to pay higher cost to get those items we required. As an example, we are paying additional 1% which total out 6% of government tax for ASTRO go since February 2011.Tax which imposed by government means increase cost for sellers. Thus, the tax will shift the supply curve the left as in figure 7. From the figure, the price paid by consumers and price received by sellers are shown as the diametric at tax value of t. The amount of tax which collected by government is on area P1 P2 BC, while amount borne by consumer are on P0 P2 BE and the seller tax is on area P1 P0 EC. In most countries, the implementation on tax fuels is intended for transportation sector and it is function as one of revenue source.As the demand of car is elastic, it means that demand is responding to price change. In this case, the provider or producer must borne o r absorb the tax. When demand is elastic, the effect of tax employ is lift the price as mentioned in figure 8. However, equilibrium quantity will decrease in this situation.At war situation, demand for fuel will drop and demand for substitutes will increase. Among substitution choices at this time is using alternative electric vehicles and focusing on public transportation such as train.In 2008, Malaysia is ranked at 26th place as world oil producers with 753,700 billion barrels per day (Malaysia is also one of OPEC member).The number of production is small if compared to Arab Saudi which produces 10,250,000 billion barrels per day. Due to war impact even though we still have the resources, the fuel must be used with most efficient way as Malaysia just began to learn, implement and use other energy alternative such as coal in electric ready.Who will weary the taxes imposed on fuel?Taxes consist of direct and indirect tax. thus where does tax income goes to? Those incomes which collected by a government were used for phylogenesis of country, public works, education, enforcement of law, health care and etc. Big issue arising on the tax imposed by government is who will offer the cost? Actually when the demand is inelastic, the producer or seller has the ability to hold most or all of indirect tax to consumer by raising the market price of car. What is mean by elasticity? Elasticity is specify as sensitivity measurement of a particular variable towards one of its determinant such as price. Therefore when demand of car market price is elastic, the producer cannot simply pass the tax to the consumer but they have to bear majority of the tax by themselves. Therefore, the tax borne by consumer and supplier is shown in figure 9 as belowUsually, suppliers will hand over the tax which borne by them in whatever goods or services to consumer. The different is whether the amount is small or big. Price elasticity of demand measures response of quantity demanded by consumer of a particular good towards change in the price of the good.What does indirect tax mean from figure 9 as above? Indirect tax is the tax which imposed by government to suppliers. Examples for these taxes are duties on alcohol, cigarettes and fuel. For certain reasons, government levied tax as a strategy to improve environment. In other words, tax is foe of subsidies which given by government.Logically, consumers have to pay the tax for fuel as it is needed daily. Whether we move to a destination to another by our own car, taxi, buses, by flight or by sea, it all used fuel as energy. As country A still recovering from war, it means that world supplies for fuel will take times to gain constant again. In countries like Japan, China and Denmark, transformation has begun to develop electric vehicles. In Japan, their cab has used fully electric operational cab in Tokyo. Malaysia which also affected by high fuel prices should learn and prick to develop electric vehicles too and should concentrate on transformation.As we know, the increasing price of fuel will directly influence the other daily goods such as milk, sugar, meat and etc. to rise too. Thus, consumers have to bear the effects in the other side. Therefore, it is unfair all burdens of taxes being bonded by consumers.ConclusionsAs fuel demands are increasing all over the world, alternative energy substitution of fuel are highly recommended. According to track Lutz from General Motors, when the price of oil rising and stay, it has negative effects to economy as oil is used in the production of virtually in everything, including steel, aluminum, plastics, rubber, fabrics, transportation, and food (Daniel Gross, 2008). Consumers may not hold the high prices for longer period of time.Implementation of tax must be review from time to time and should be studied on the impacts to consumer, market and economy. Too high taxes will burden consumers and of course the price of goods will rise too. Therefore, demand of goods will decreaseIn order to implement the taxes, government in country A must consider many aspects before the tax is being implemented. This step actually will give impact for long term. Why? We have seen the effect of high fuel price towards car market. Nowadays, car is considered as must have or needed at least one unit in a family or a household. However, lots of car offered in the market is also beneficial to consumers as we can choose the type of car we like with the specifications we like.That was for short term effect. What will happen if the main producer of fuel continuously involved in crisis or the crisis took longer period to be calm and solve? The effect will be worsening and as could be as what had happen in 1970s where fuel supplies in West countries in that year were in critical situation.Political stabilities also play important roles in influencing fuel price especially in Middle East countries. We know the fact that Middle East countries are rich wi th oil resources. modish crisis in Libya has almost cut off about 300,000 barrels of fuel production. According to Oil and Gas Journal (OGJ), Libya own total proven oil reserves of 46.4 billion barrels as January 2011 which is the largest in Africa. Thus, war situation or this type of crisis has put fuel supplies at jeopardize. Traders and abbreviation is watching closely on strikes especially in countries such as Iran as continuous oil price spikes could cause inflation and infecting global economic growth. Latest news, Oil companies reported has shut off their plant as the country is still in chaos. What is become worsening is the other country which is also producing fuel, Oman also involve crisis. Thats frightened as the risk of oil production surely will stop.Words 2,804