CAIE IGCSE Economics 4.2.3 Taxation Questions
Practise Cambridge IGCSE Economics by classifying taxes, calculating tax revenue or rates and evaluating how tax changes affect incentives, equity and growth.
- Syllabus
- 2027–2029
- Course
- Economics 0455
Exam points
- Classify direct and indirect taxes and identify progressive, proportional and regressive tax structures from examples or diagrams.
- Calculate tax revenue or tax rates from income, expenditure and government-revenue data.
- Evaluate tax changes by weighing revenue, incentives, equity, consumption and economic outcomes in context.
CAIE IGCSE Economics 4.2.3 Taxation Questions question 1
[Maximum number: 8]
In April 2023, a French cosmetics firm merged with an Australian cosmetics firm. It is expected the merger will lower average total cost as the new firm is likely to benefit from greater internal economies of scale. A manager stated that a key aim is to make the firm's production more sustainable by using raw materials taken from renewable sources. In most countries, the cosmetics firm's products, including perfume, are taxed at a higher rate than food.
Discuss whether or not perfume should be taxed at a higher rate than food.
Discuss whether or not perfume should be taxed at a higher rate than food.
In assessing each answer, use the table opposite.
Why it should:
- perfume is a luxury whereas food is a necessity
- rich spend more on perfume than the poor
- taxing food more may increase poverty as poor spend a high proportion of their income on food
- perfume is less likely than food to be a merit good
- a higher price for perfume will not significantly contribute to inflation, not a significant item in CPI
- perfume may be imported while food may be supplied by domestic firms.
Why it should not:
- demand for perfume may be elastic and so may not raise much revenue. In contrast, inelastic demand for food so may raise high tax revenue
- perfume may be an important domestic industry. Higher taxes may result in closure / unemployment
- some food is a demerit good e.g. food with a high sugar content
- taxing demerit food may improve health
- taxing food may reduce obesity.
8
Level
3
3(d)
Level & \multicolumn{1}{|c|}{ Description } & Marks
1 &
There is a simple attempt at using
economic definitions and terminology.
Some reference may be made to
economic theory, with occasional
understanding.
1-2
0
A mark of zero should be awarded for
no creditable content.
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