Question 1
What is not likely to be included in a government budget?
A
anticipated tax revenue
B
changes in exchange rates
C
forecast government borrowing
D
proposed government spending
Covered syllabus points
Question 2
[Maximum number: 1]
Which role is not performed by a government?
A
paying dividends to shareholders
B
promoting international trade agreements
C
providing state benefits
D
subsidising merit goods
A
Question 3
[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.
\end{tabular}
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