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Question 19M.1.HL.TZ2.1a

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Date May 2019 Marks available [Maximum mark: 10] Reference code 19M.1.HL.TZ2.1a
Level HL Paper 1 Time zone TZ2
Command term Explain Question number a Adapted from N/A
a.
[Maximum mark: 10]
19M.1.HL.TZ2.1a
(a)

Using an appropriate externalities diagram, explain why a government might decide to impose a price floor on a demerit good.

[10]

Markscheme

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

  • definition of demerit good, price floor
  • diagram to show a negative externalities of consumption diagram with a price floor (minimum price) shown
  • explanation of why a government might place a price floor above the equilibrium price in the market for a demerit good, in terms of negative externality arguments, and reducing consumption
  • examples of price floors being imposed on demerit goods in practice.

NB If students attempt to provide two different diagrams, one for a price floor and one for negative externalities, they should be credited in the same way one diagram might be.

Examiners report

Most candidates were able to draw an appropriate externalities diagram to which they applied a price floor set above the free market equilibrium. Some chose to use two separate diagrams, which was acceptable. Most candidates could provide a solid explanation of why a price floor might be applied in this case.

Syllabus sections