THE TASK: I. To evaluate (graphically and in words, no calculations necessary) the impact of the following

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THE TASK: I. To evaluate (graphically and in words, no calculations necessary) the impact of the following policy option: imposing price controls on fuel (which consumers have little choice but to use as alternatives are limited), such that the maximum price that can be charged would be less than the market equilibrium price. Explicitly note how this impacts on consumer surplus, producer surplus, efficiency and the amount of fuel consumed. Will this alleviate or hamper the aim of the policy, which is to make fuel cheaper and more widely accessible to Dutch consumers?

II. Find a historical case (anywhere in the world) where a price control policy (not necessarily on energy) was enacted to make a product more affordable and accessible to the public, and summarise the effectiveness (or ineffectiveness) of the policy. Note why it succeeded (or failed), and how it could inform how effective (or ineffective) the theory you have presented in part (i) could be.

Background: Real World Scenario and Policy Dilemma

The current war in Ukraine has led to a curtailing of purchases of Russian oil and gas within the European Union (EU) as a matter of policy (see for example: https://www.iea.org/reports/a-10-point-plan-to-reduce-the-european-unions-reliance-on-russian-natural-gas), of which the EU member states are heavily dependent on for their economies and for day-to-day living (https://www.statista.com/statistics/1201743/russian-gas-dependence-in-europe-by-country/ has data on gas dependency for example).

Accentuating this issue is that Russia is also curtailing supply further as a matter of policy, in order to increase the cost of energy within the EU states with a view of making the cost of their support for Ukraine high, and potentially ‘too high’, thus reducing their support for Ukraine, which would benefit the Russian Federation (see for example: https://www.cnbc.com/2022/09/06/energy-crisis-why-has-russia-cut-off-gas-supplies-to-europe.html and https://www.reuters.com/business/energy/europe-races-cut-russian-gas-usage-amid-new-putin-warning-2022-07-20/).

These two events, (i) the EU running a policy to reduce imports of Russian oil and gas, and (ii) the Russian Federation’s curtailing of supply of gas to the EU in particular, obviously leads to a fall in the supply of oil and gas available to the EU economies and people. The natural solution would be to find substitutes for these shortfalls; however, these take time, whether it is (i) oil and gas from other countries (e.g. oil from Saudi Arabia and liquefied natural gas [LNG] from Qatar) or (ii) switching the energy mix away from oil and gas, to non-carbon energy sources be it nuclear power (so not renewable energy but non carbon energy) and/or renewable energy such as solar power or wind power. Thus, substitutes for Russian oil and gas cannot replenish the loss of Russian supply in the short-term. This, coupled with soaring energy prices, means that people within the EU states face not just higher prices for energy, but also potential rationing of supply (e.g. blackouts, lack of hot water) during the upcoming winter from say December 2022 to March 2023.

This obviously has led to calls for government policies to ameliorate this hardship for consumers (and in effect for the economies of the member states). This emphasis on policy is the subject of this assessment, based on this real-life policy dilemma. The crux of the assessment is stated below:

You are an economist, and part of an inter-disciplinary team set-up within the purview of the office of the Dutch Prime Ministership. Thus your focus should be on the situation as it impacts on the Netherlands only.