Question

Government is known to utilize a product's elasticity measures to set taxes and subsidies. Use this information to set policy on one of the following products: tobacco products, petroleum products, agriculture products, or medical products according to your goal. Research the government's tax/subsidy policy in these areas and any objectives of the tax policy. State your goal, your prescribed action, and why you believe it will work using the information you found.

300 WORD RESPONSE USING MICROECONOMICS PRINCIPLES PLEASE! Sources appreciated. Thank you!

Answer 1

Petroleum products: Petroleum products, i.e. oil are less elastic in nature since it does have very few substitutes or no substitutes and that's why an increase in its price won't decrease its demand significantly.

Oil attracts very high subsidy than other energy resources, i.e. alternative energy resources, i.e. wind, nuclear, etc.

Fossil fuel production gets approximately USD 20 billion direct subsidy every year from the US government and this figure is limited to direct subsidy which does not include consumption subsidies and offshore fossil fuel production subsidies.

Objective of above subsidies: Objective of above fossil fuel subsidy is to subsidise the fossil fuel production cost of the domestic US companies in order to compete with international fossil fuel companies, i.e. oil and to provide cheaper oil at cheaper rates even lower than international market to its consumers/public and to save the domestic oil companies and make them profitable since without the subsidies prices for oil will get increased since without subsidies cost of exploration, drilling and oil production will get increased and this will result into increase in its prices.

But it is also worth noting that tax revenues from oil is the major source of income for the developed and developing countries and especially for the developing countries, i.e. Egypt and India, etc.

Goal: My goals is to decrease the subsidy given by the US government since US is not a big producer of the petroleum products and price increase won't be too much and this will help in developing alternative energy resources since US can reduce CO2 emission and can ask other countries to reduce their subsidies and elimination of subsidy won't decrease the oil production in the US with great extent and US can import the oil from international market to fill the gap in production.