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China hits record petroleum diesel rations supplies Reuters markets.
In fall 2007, I was living in Shanghai, China At the time, oil prices have been world wide reached record levels, leading to higher gasoline prices for drivers in most places However, at the time, I started witnesing an unusual site on my taxi rides in the city of Shanghai as our past service station taxi after the gas station, I observed dozens of the blue trucks ubiquitous means of transportation well from Shanghai plants spilling its ports on the parking lots of the gas station in the road, apparently on hold, waiting for a place at the pump, I had never seen these long queues at one of the service stations around Shanghai before, and I began to wonder about the reasons for these crazy long lines.
Well, an article at the time helped solve the riddle long lines As it stands, there was a simple explanation rooted in the principles of supply and demand that first student in AP or IB economy semester include the Chinese government was forced to ration gasoline by limiting the amount a driver can buy at one time due to shortages resulting from government price controls on gasoline market.
Truck drivers reported long queues at service stations along a national road linking the provinces of Fujian and Zhejiang, with each truck getting 100 yuan $ 13 of diesel, or about 20 liters, per visit a State station and 40 liters in a private booth.
What is wrong with the oil market Our drivers had to queue all night for just a small amount of filling, slowing traffic almost one day, said Gao Meili, who manages a logistics company.
China is a major oil importer With economic growth around 12 in 2007, much of the country's growth depended on the availability of crude oil at reasonable prices, which China's oil refining businesses transform into diesel and gasoline necessary for Chinese manufactured products factory to the port and harbor consumers overseas territories.
The problem with the oil market in China, however, that Chinese refiners can not pass the gross costs acidifying consumers of oil is a necessary input to produce a finished product, as diesel oil prices rose in 2007 it reached a record 92 per barrel in October this year, the resource costs for gasoline and diesel producers have also increased the supply of gasoline and diesel to the left, putting pressure upward on the equilibrium price as the first student AP or IB semester knows, resource costs are a factor of the offer, and the oil the major resource for the production of gasoline and diesel rose in price, the supply of these important products invariably declined.
In a free market, a decrease in supply causes the price increase therein lies the answer to the riddle lies in long service stations in Shanghai Does the Chinese gasoline and diesel market is not a free market the government plays an active role in controlling the prices paid by consumers for the finished product refiners produce gasoline fuel.
Beijing fears stoking already high inflation and rigidly caps fuel pump rates to protect users a gathering of 50 percent in global oil so far this year.
As costs for gasoline and diesel producers increased in 2007, the Beijing government took the side of consumers and prohibits fuel producers from increasing prices they charge consumers Chinese government imposed essentially a price cap on the gasoline market a price ceiling is the maximum price set by the government to help consumers by keeping essentials like affordable fuel as we learned this week in AP and IB economy, price controls like this end up hurting producers and consumers because they only lead a dis- equilibrium in the market where the quantity applied for a product increases when the quantity supplied by firms economical gasoline and diesel shortages resulting from the price of government control are the perfect explanation for the long lines of trucks and blue s cooters at all gas stations in Shanghai in October 2007.
So why, exactly, the government price of the application of the lower balance so that these critical shortages that truck drivers are allowed to pump 20 liters of gasoline per visit and made to wait for hours each time they need to complete following a power supply and demand diagram that illustrates the situation in the Chinese fuel market in 2007.
In the graph above, the supply of gasoline has decreased due to the increasing cost of the main resource that goes into gasoline, oil This decrease in fuel supply means has become more scarce, and accordingly the equilibrium price should increase, however, because of the government's intervention in the gasoline and diesel markets, the price was not allowed to rise and remained in place at the maximum price of Pc.
The maximum price imposed by the government of Pc, the amount of fuel required by drivers far exceeds the quantity supplied by the oil producers of China The result is an equal shortage of gasoline Qd-Qs.
The government intends to keep prices low gasoline is clear to consumers to make them happy and keep transportation costs low among Chinese manufacturers not to risk a slowdown in economic growth in China, however, the net effect of price controls is a waste of total well-being in the gasoline market Notice the colored areas in the graph above They represent the effect on consumer welfare and excess Production of price controls.
The total area of green shapes, orange and gray represent the total amount of consumer surplus and producer on the gasoline market assuming there was no price control at a price of Pe, the quantity demanded and the quantity supplied equals Qe and the consumer surplus and producer surplus is maximized the market is efficient at a price of Pe neither shortage nor surplus gasoline exist.
However, a PC price the maximum price set by the government, the amount of gas actually produced and consumed in the market is that Qs It is clear that those who are able to buy gasoline are better because they paid a lower price than they should without the price ceiling but notice that there is a huge shortage of fuel now; many people who are willing and able to buy gasoline Pc simply can not get the amount they require, because companies are simply not enough. occur
The total consumer surplus goes to the area under the demand curve and above Pc, but only to Qs The green area represents the excess of consumers after price controls, it is not at all clear whether consumers are actually better with the ceiling price.
Producer surplus Total clearly reduces the orange triangle below and above the supply curve Pc producers of gasoline are definitely worse off because of government action.
So how is the market as a whole affected The black triangle represents net loss of welfare in the opinion of government price controls with a price of Pe, the black triangle is added to consumer surplus and producer, but with an imbalance in the market Pc, the black triangle is the well-being lost to society.
The price control by the government have a clear stated purpose is to help consumers in the event of a maximum price or a price cap or producers in the case of a minimum or floor price, but the effect is always predictable from the point of view of an economist a set price by a government above or below the equilibrium price will always lead to a shortage or surplus of the product in question in addition, there will always be a loss of total well-being resulting from price controls, which means that society as a whole is worse than it would be without government intervention.
With a lower supply of a product such as gasoline, the amendment of the application, or the quantity demanded What is the difference.
Set the consumer surplus and producer surplus Why the control of government price to reduce the total well-being of consumers and producers in a market such as gasoline.
How a government subsidy to gasoline producers provide a more desirable solution to high oil prices than the maximum price described in this article in your notes, sketch a new market chart for gasoline and show the effects on supply , demand, price, and the amount of government subsidy to gasoline producers Is a subsidy creates a loss of welfare why or why not.
About the Author Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland Besides publishing various online resources for economics students and teachers, Jason developed the online version of the course of economics for the IB and is the author of two economics textbooks economy Baccalaureate Pearson IB diploma and REA AP Macroeconomics Jason Crash Course is from the Pacific Northwest of the United States, and is an adventurer enthusiast, who considers himself a mountain biker skier who teaches economics in his free time he and his wife keep a ski chalet in the North Idaho mountains, now they live in the Swiss Alps use too little read posts by this author.
58 Responses to price control in the market of China's gasoline or why you may have to wait in line to fill your gas tank.
Well, the Chinese government is a government completely controls and controls much of the Chinese economy Sometimes this can be positive and sometimes it can be negative As everyone knows, oil prices fluctuate widely this means that when oil prices hit the ceiling, it was only a matter of time before the price decreases the Chinese government again, in this case, deliberately created a shortage of supply for consumers, but nobody ever said that producers didn t keep the offer, it is possible that the Chinese government tried to protect producers rather than consumers so obviously where consumers unhappy because of a shortage of oil by being able to purchase a certain amount each time they entered a gas station This means that fewer people are driving during the period o รน the government created the shortage consequently, producers could therefore last longer with a certain amount of oil, and could limit oil revenues in China by al substanti amount when the price was high ski soon as the price decrease China most likely start again its normal income routine again, this is just an unproven hypothesis of the situation.
I understand what you SAY, I think I might agree with you, first of all, I think you are saying that the government could intentionally announce that there is a shortage of oil, when it is not, so they are able to ration oil and set the price themselves this way, the consumer prices remains constant, even if the oil price fluctuates in other countries, it doesn t change the price of the oil they buy, how they are rationed in this case, the government must sacrifice a lot, because there are a lot of dead loss product weight at the beginning, I thought it sounded like a great idea, but I thought, I thought about how there are huge shortages, which is extremely inefficient, and also people are not rewarded by oil based on how much they are willing to pay, but where they are in line with the stati one tank, which is really just so even if putting a ceiling price sounds like a good idea, I think it is too inefficient, and long-term harm all stakeholders.
Oil supply has decreased due to production costs and higher prices that consumers pay does not change He became less profitable to produce oil and export it to China, compared to Europe example.
2 With a lower supply of a product such as gasoline, the amendment of the application, or the quantity demanded What is the difference.
3 Set the consumer surplus and producer surplus Why the control of a government price reduce the total well-being of consumers and producers in a market such as gasoline.
CS and PS are basically consumers Producers happiness Consumers should pay less, but producers therefore have higher price is not a win-win situation.
4 How a government subsidy to gasoline producers provide a more desirable solution to high oil prices that maeximum prices described in this article in your notes, sketch a new market chart for gasoline and show the effects on supply, demand, price and quantity of a government subsidy to gasoline producers did grant create a loss of welfare why or why not.
A grant creates a loss of well-being, due to the allocation of taxpayer funds is an opportunity cost for the government grant money could have been spent on education or infrastructure.
Sorry, I could not have explained myself well what I was saying was that the Chinese government has tried to make the effect of the increase in international prices of oil less bad for their citizens by voluntarily reducing supply By this supply would decrease and fewer people driving down the road that way, China could significantly reduce oil imports until the oil price decreases again they tried to keep it as the offers possible so you have to buy a minimum amount of oil during this time that way, the country could survive the current oil supply until prices would fall yes, it didnt change the price oil they buy, how they are rationed that industrial drivers is very inefficient oil shortages, if this was indeed the case, the Chinese government thought that their would cost much less to act in this way, however, the article said that the transportation of goods was delayed about 24 hours is very expensive and is therefore whether more or less expensive for the country determines the efficiency is the I 'really hope sense.
interesting thoughts that I do not think that the intentions of the Chinese government or the actions are just as sophisticated as you propose to be in the case of a control straighforward prices, intended to make gasoline more affordable to households Chinese and businesses who need to drive their cars and trucks in China the government is still worried about the unfortunate citizens, and fears of inflation caused by rising oil prices will lead to protests or riots across the country to avoid this they must seem to do something to keep the cheap gasoline, and therefore there is a legal ceiling prices for gasoline.
Producers are suffering, but probably end up selling batches of gasoline on the black market anyway consumers can complain t the government isn t try to help them, however, are less likely to express their anger at government by demonstrations or riots.
beautiful product you man I understand your stuff prior to and you are just extremely.
And distribute gasoline enough to meet domestic demand control of Chinese prices caused fuel rationing and shortages in the past The United States created the Federal Energy Administration in 1974 after oil OPEC.
The price control in the market of China's gasoline or why you might have to wait in line to fill your gas, price controls, Chinese.