Question

"Discovery of natural gas in the international market leads to a cut in the petrol and diesel prices."
Explain the economic theory to analyse the impact of the statement on the cost of production of the transport firms in India. Also analyse its impact on the cost of transportation.

Answer 1

India meets its domestic demand for petrol and diesel largely through imports. Accordingly, a cut in their price in the international market leads to cut in price in the domestic market as well.
Transport firms use petrol and diesel as a major input. A cut in their price is expected to lower their cost of production. Other things remaining constant, it would lead to lower cost for the transportation of goods across different places.