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ECO401 Economics GDB 2 Solution Fall 2012

The New Year 2013 has also been started with the shutdown of CNG stations and power plants due to shortage of gas and strikes of CNG associations. Pakistanis are in the jaws of another crisis as they are facing shortage of Compressed Natural Gas (CNG) for domestic use. The other side of the coin is that the industrial sector is also suffering a lot due to the shortage of CNG. Pakistan faced one of its most crucial gas crises, with the shortfall rising up to 1.8 billion cubic feet (bcf).It has become a familiar scene across Pakistan in recent weeks that there are long lines of cars and minibuses snaking for hundreds of yards. The reason for the long lines is a pricing dispute involving the government and the Supreme Court that has caused many station owners to shut down their gas supply. Oil and Gas Regulatory Authority (OGRA) has warned CNG station owners of show-cause notices and cancellation of licenses if government orders of selling the fuel at reduced rates were abided by. OGRA has asked all CNG station owners to continue selling the gas at reduced rates, but the association’s body challenged the orders. This problem is growing bigger and bigger now-a-days. Each of the big consumers of natural gas is now fighting with each other. The Supreme Court announced its reserved judgment in CNG pricing case, directing OGRA to discharge its obligation in accordance with the law and come up with a consumer-friendly pricing formula in a swift manner but all in vain. According to latest report, OGRA has increased the prices of CNG up to 21.4 percent but this decision was also rejected by All Pakistan Associations.

Requirement:

Being a student of Economics, analyze the above critical situation prevailing in our country and answer why the government is helpless to control such acute situation in the prevailing market structure? Discuss with appropriate economic reasoning.

Solution:

The decision of shutting down one complete industry in Pakistan that involves huge investments, employments and serving nation with cheaper and environment-friendly way of transport is being done without finalising alternative means, sources in auto sector said on Monday.Recently there is a lot of debate going on alternate fuel systems and its availability to general public in a package that is affordable to them. Recent intentions of government are clear to promote LPG and discourage consumption of CNG. The decision is not viable as it seems it has been taken in haste and without considering the pros and cons, the sources revealed. 


The best way to deal with CNG cartels and other cartels is to remove all licenses and quotas, and make it a free market with no restrictions on  doing businesses or producing or distributing something. Government  sponsored monopolies through licensing and quotas create all this mess  of artificial supply shortage. With restrictions removed then innovators and small entrepreneurs can find ways to cater the market demands.

We need “Rule of Law” based approach with “free market economy” not “Rule of Govt./Mafias” based approach with “central planning”
 


 

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