Question 19N.1.HL.TZ0.b
| Date | November 2019 | Marks available | [Maximum mark: 15] | Reference code | 19N.1.HL.TZ0.b |
| Level | HL | Paper | 1 | Time zone | TZ0 |
| Command term | Discuss | Question number | b | Adapted from | N/A |
Discuss the significance of price elasticity of demand (PED) for a government imposing an indirect tax on a good.
[15]
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.
Answers may include:
- definitions of indirect tax, price elasticity of demand (PED)
- diagram(s) to show the effect of taxation on the market for a good and how the price elasticity of demand (PED) will impact the outcome
- explanation that the government uses indirect taxes to raise revenue as well as to limit the production/consumption of demerit goods
- examples of specific products upon which a government has imposed indirect taxes in practice
- synthesis or evaluation (discuss).
Discussion may include: consideration of the extent to which government revenue and the production/consumption of the product will be impacted by the PED, consideration of the effect of PED on how the tax burden will be divided between consumers and producers, consideration of the effect of PED on workers (employment), consideration of the difficulties in measuring PED and in determining the socially optimal level of production/consumption (when taxes are imposed to limit the production/consumption of demerit goods).
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
NB: It should be noted that definitions, theory, and examples that have already been given in part (a), and then referred to in part (b) should be rewarded.
