Practise explaining maximum and minimum price controls, analysing shortages, surpluses and welfare effects, and evaluating government price-control policies.
Assess whether fixing a minimum price is likely to be the best policy to reduce the consumption of a demerit good.
Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question.
AO1 and AO2 out of 8 marks. AO3 out of 4 marks.
Indicative content
Responses may include:
AO1 Knowledge and understanding and AO2 Analysis
- Use of minimum pricing to increase the price of the demerit good and reduce consumption.
- Problems of using minimum pricing may include discussions around inelastic PED, problem of information failure persists, informal markets may appear etc.
- Alternative policies that may be considered include increasing indirect taxes, education, provision of information and analysis should focus on the advantages and disadvantages of such policies in reducing the consumption of demerit goods.
- Points to consider will include ease of introducing the policy, time and cost, reception by consumers etc.
- Accept any valid policies but the analysis must focus on how they may reduce the consumption of demerit goods and discuss their advantages and disadvantages.
Level 1 responses will be assertive and lacking in explanations / mainly descriptive and/or or mainly lacking in relevance to the question.
Level 2 responses may contain some inaccuracies and will be one sided. Analysis will be explained at least in part and will be largely relevant to the question.
Level 3 responses will consider alternative policies / concepts etc. and will be balanced. Explanations of points raised will be offered and will be accurate and relevant to the question.
AO3 Evaluation
- Requires an assessment of at least one other policy to be compared against minimum pricing policy which leads to
- A justified conclusion as to whether a minimum pricing is the best policy to reduce the consumption of demerit goods.
A one-sided response cannot gain any marks for evaluation.
Please use a text box to show the mark split e.g., L2 5 L1 2
EITHER