To assist homeowners in reducing their carbon footprint and lowering energy bills, the Government announced that the rate of Value Added Tax (VAT) applied to residential insulation materials and heat pump installations will be temporarily cut from the standard rate of 20% down to a green stimulus rate of 4%.
The original price of a high-efficiency loft insulation pack is £1,560 including VAT at the standard rate of 20%.
Using the information in Extract B, calculate the new price of the loft insulation pack following the reduction in the VAT rate, assuming the tax savings are fully passed on to the consumer.
378 exam-style questions on AQA A Level Economics 1.8 The market mechanism, market failure and government intervention in markets, covering 1.8.1 How markets and prices allocate resources, 1.8.2 The meaning of market failure, 1.8.3 Public goods, private goods and quasi-public goods, 1.8.4 Positive and negative externalities in consumption and production, 1.8.5 Merit and demerit goods, 1.8.6 Market imperfections, 1.8.7 Competition policy (A-level only), 1.8.8 Public ownership, privatisation, regulation and deregulation of markets (A-level only), 1.8.9 Government intervention in markets, and 1.8.10 Government failure. Each one has a worked solution and a mark scheme showing where the marks go.