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4. Explain the effect of keeping petroleum product markets regulated in Nigeria. Is petroleum product pricing...

4. Explain the effect of keeping petroleum product markets regulated in Nigeria. Is petroleum product pricing in Nigeria a classic example of price ceiling or price floor?

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Answer #1

The markets are regulated which implies that the market power of firms producing petroleum products is curbed by the government. This should result in raising the quantity relative to the one in which market is dominated by imperfects but somehow the quantity of products is not sufficient to satisfy the demand since most of the reserves of natural resources are largely unexploited.

Since regulation prevents the prices from reaching the market equilibrium, these are similar to price ceilings, and thus, it is expected that there will be a shortage of petroleum products.

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