Demand for a polluting fuel is highly price inelastic. The government imposes a large indirect tax. Which outcome is most likely?
Consumption falls sharply and tax revenue must be zero
Price rises and tax revenue is raised, but consumption may fall only slightly
Supply shifts right because producers receive a subsidy
The external cost is eliminated immediately
31 exam-style questions on OCR GCSE Economics 3.8 Limitations of markets, covering 3.8.1 Positive and negative externalities, 3.8.2 Policies to correct externalities, 3.8.3 Impact of externality policies, and 3.8.4 Costs and benefits of externality policies. Each one has a worked solution and a mark scheme showing where the marks go.