Question 21M.1.HL.TZ1.1b
| Date | May 2021 | Marks available | [Maximum mark: 15] | Reference code | 21M.1.HL.TZ1.1b |
| Level | HL | Paper | 1 | Time zone | TZ1 |
| Command term | Evaluate | Question number | b | Adapted from | N/A |
Evaluate the effectiveness of government regulations in achieving a reduction in the consumption of demerit goods.
[15]
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.
Answers may include:
- definition of demerit goods
- negative externalities diagram showing reduced consumption of demerit goods
- explanation that government regulations may restrict the demand for, or the supply of, demerit goods, resulting in lower equilibrium quantity
- examples of demerit goods and/or cases where government regulations on demerit goods have been imposed (e.g. ban on smoking and drinking in public places, age limits, warnings on packaging, ban on the consumption of certain drugs)
- synthesis or evaluation.
Evaluation may include: consideration of the strengths of government regulations: do not increase tax burden; relatively simple to implement (compared to market-based policies), addressing directly the consumption of demerit goods, complete bans may be very effective in preventing the use of highly addictive demerit goods; consideration of the limitations of government regulations: difficulties/cost of enforcement and lack of government revenue, may be politically unpopular; decrease the revenues of producers of demerit goods and the income of workers in these industries; complete bans may lead to underground parallel markets; consideration of the strengths and limitations of alternative (market-based) policies.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
The most common mistake was when candidates focused excessively on taxation (often incorrectly considering taxation to be regulation). Another mistake was to state that demerit goods have negative externalities in production despite the IB syllabus stating clearly that "demerit goods are goods whose consumption creates external costs". Almost all candidates were able to give an appropriate example of a demerit good (cigarettes being the most popular example by far) even if they could not precisely define it.
