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Demand and Supply factors affecting the Price
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When a region of the country is politically unstable, the suppliers tend to avoid such markets due to fear for their business. This in return leads to a shortage of oil and the little that is available sells at very high prices even while the production level is constant.
Just like many commodities, a change in weather affects the supply of oil. More heating takes place in winter hence high demand of oil. People tend to travel much during the summer and this leads to prices going up due to high demand. Infrastrucures disruption on extreme weathers like hurricanes or thunderstorms restricts the supply of oil to these places causing a rise in the prices of the available oil.
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Competition among retailers greatly affects oil pricing. A retail outlet on a highway or one in a busy street tends to attract more customers, and the price here tends to be higher in comparison to other parts of the town. This is because dealers are free to set their own prices even though they are selling a brand from the same oil company.
Q 2 Externality- Pollution
Industrial pollution is a negative eexternality because the industry polluting incurs no cost in doing so. The society however pays heavily to take care of the pollution problem. The industry is not obligated to subtract these costs from the revenue earned hence their profits portrays the industries action as positive. Since the market and individuals cannot be counted on in the prevention of the inefficiency, the government comes in to solve the problem. The aim of the government’s intervention is to force the industry responsible internalize the externality costs. To mean that if an economic cost results due to pollution, then it has to bear the cost. The governments have hence come up with regulations like pollution limits and taxation for companies polluting the environment.
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