Practise tracing an indirect tax through supply, price and quantity changes, then analyse tax incidence, revenue, surplus and external-cost effects.
Sources for Section C: The markets for oil and electric cars. Figure 1 shows global oil prices from 2016 to 2020, with a sharp fall in early 2020. Extract A: movement restrictions closed offices and factories, reducing transport and energy use and therefore oil demand. Russia increased production while Saudi Arabia responded by increasing its production. In India, petrol and diesel prices fell only 7% because almost half their price is indirect tax. Extract B: Canada aims to remove petrol and diesel cars by 2040, but only 2% of cars were electric in 2019. A $5,000 manufacturer subsidy applies to electric cars below $45,000; only nine models qualify. Canada has 5,800 charging points for 37 million people and plans to spend $130 million on more. Electric cars have zero driving emissions, but battery production uses twice as much energy as conventional batteries. Electricity can cause emissions if generated from fossil fuels. Canada generates 60% of electricity using hydroelectricity, a renewable resource.
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Examine two effects of high indirect taxation on diesel and petrol in India.