Assignment Details:
Please read the following three articles using the “Written Assignment readings” link in the “Written Assignment” module.
(Article 1): “Oil-producing nations struggling for market power as oil prices drop” by Paul McGeough published in The Age on February 7, 2016
(Article 2): “Saudi Arabia to boost local petrol prices by more than 50% to counter record budget deficits” published in ABC News, December 29, 2015
(Article 3): “Low fuel prices come at a cost” by John Beveridge published in the Herald Sun on January 10, 2015
By extracting the relevant information from the above articles and using geometric analysis involving diagrams and written explanations compare the impact of the fall in crude oil price on household choices and their well-being in oil-importing countries like Australia with those in oil-exporting nations like Saudi Arabia. Further for the case of Australia, compare the likely choice responses of households who live closer to urban centres and commute short distances versus those who live farther away and need to commute over longer distances.
In writing your answer, please pay careful attention to ALL of the following pointers:
(1) The three articles touch upon a diverse set of issues and collectively provide you a good overall background on the potential causes and consequences of the recent drop in crude oil price. For this assignment however, the most relevant aspect to focus on is the vastly different impact of the fall in crude oil price on households in oil-importing countries like Australia as compared to those in oil-exporting nations like Saudi Arabia.
(2) For simplicity, suppose that a representative household in either country needs to use a car for transportation and spends its entire income on two commodities: petrol (x) and other goods (z).
Assume that the household preferences can be represented by strictly convex indifference curves and that both x and z are normal goods.
(3) Based on your readings of the articles, you will need to make a reasonable conjecture of the impact of crude oil price slump on the prices of x and z and the relative price of x in BOTH Australia and Saudi Arabia and state this explicitly in your answer.
(4) Based on your conjecture of the price impacts, you will need to diagrammatically analyse and explain the potential impact on household choices and well-being for each of the countries. DRAW SEPARATE DIAGRAMS FOR EACH COUNTRY. Make sure that your work is detailed and involves all the relevant theoretical and geometric concepts/tools required given your prediction of the price impacts.
(5) Diagrams are not necessary when making comparisons among Australian households with short versus long commuting times. However your arguments will need to be well written and nuanced involving the analytical concepts naturally relevant for such a comparison.
(6) Pay attention to the quality of your writing and attempt to avoid spelling and grammatical errors.
(7) Searching and referencing of additional articles is not required. However you should clearly cite the source when quoting specific information from any of the three prescribed articles.