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Edexcel IGCSE Economics 1.2.6.b Evaluating Government Intervention

Edexcel IGCSE Economics 1.2.6.b Evaluating Government Intervention
Edexcel IGCSE Economics syllabusEconomics 4EC1First assessment 2019

Practise assessing taxes, subsidies and regulation by applying benefits, costs and enforcement limits to externality cases.

How this is tested

  • analyse how a tax internalises external costs and changes producer or consumer incentives
  • evaluate regulation using environmental gains, compliance and enforcement limits
  • weigh subsidy benefits against opportunity cost, fiscal cost and possible inefficiency

Question 3(e)

[Maximum number: 9]

Sri Lanka Railways (SLR) has made a loss of Rs 331 bn over the last 10 years. The Sri Lankan Government provides a subsidy so that ticket prices can be reduced. This is to encourage passengers to use trains rather than further increase congestion on the roads.

A spokesperson for SLR said that it needs to upgrade existing railway tracks to make services more comfortable for passengers as well as increase the number of trains to reduce overcrowding. This will require a larger subsidy.

With reference to the data above and your knowledge of economics, assess the effectiveness of subsidies in dealing with externalities, such as road congestion.