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3.8 Limitations of markets

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Question 48

A government increases an indirect tax on each pack of fireworks from £1 to £2. Demand for the packs is highly price inelastic.

Why might the increase in the tax rate raise total tax revenue?

[1]
A

The tax per pack has doubled, so revenue doubles even if sales halve

B

The higher tax lowers suppliers' costs, so they supply more packs

C

Sales fall only slightly, so the extra tax per pack outweighs the lost sales

D

Firms earn more profit on each pack, so they pay more tax on their profits

Markscheme

3.8 Limitations of markets Questions

  1. GCSE
  2. /Economics
  3. /3.8 Limitations of markets

127 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.

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