Question 22M.3.HL.TZ0.2a.v
| Date | May 2022 | Marks available | [Maximum mark: 2] | Reference code | 22M.3.HL.TZ0.2a.v |
| Level | HL | Paper | 3 | Time zone | TZ0 |
| Command term | Show that | Question number | a.v | Adapted from | N/A |
Taxes on fuel
India is said to have the highest taxes on fuel in the world. At the current market equilibrium, the price of petrol (gasoline) in New Delhi is comprised of the components shown in Table 4 (approximate figures).
Table 4
Figure 2 illustrates the market for petrol in New Delhi. D represents the demand for petrol in millions of litres per day. S + t represents the supply (incorporating the effect of indirect tax) of petrol in millions of litres per day.
Figure 2
Using Figure 2 and your answer to part (a)(ii), show that in the absence of indirect taxes the supply of petrol in New Delhi would be price inelastic.
[2]
The majority of candidates were able to identify two points on the supply curve, calculate PES and show that as the value was less than 1 supply was price inelastic. However, errors were common. Candidates calculated PED rather than PES or took final values as the denominator when calculating elasticity. Very few candidates were able to recognize and state that any linear supply curve which intersects the horizontal axis must represent price inelastic supply.
