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Indirect taxes and subsidies Theme 1

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A-level Paper 1 (and Paper 3); AS Paper 1
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Section 1.2, 1 statement
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23 question parts: 5 essays, 0 levels-marked responses, 5 multiple-choice items

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SeriesPaperQMarksTitle
June 2025AS Paper 16(f)20Evaluate the likely microeconomic effects of a reduction in subsidies to farmers of animal products (Figure 1 and Extract B, line 14). Use a relevant diagram to support your answer.
June 2025AS Paper 16(g)20Evaluate the likely microeconomic effects of an increase in indirect tax on animal products (Figure 2 and Extract A, line 17). Use a relevant diagram to support your answer.
June 2024AS Paper 16(f)20Evaluate the likely impact of a tax on plastic food-packaging. Use a diagram to support your answer.
June 2019Paper 31(e)25Evaluate the likely microeconomic and macroeconomic effects of imposing a tax on HFSS foods.
June 2017Paper 1725In 2015 a report by Public Health England recommended the imposition of a 20% tax on the sale of soft drinks that contain high levels of sugar. Evaluate the likely microeconomic effects of such a tax.

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June 2025 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or Hard
Data and extracts for question 6Sources for use with SECTION B Read the following figures (1 and 2) and extracts (A and B) before answering Question 6. The market for meat and the growth of vegetarianism Figure 1 The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm) Cereals Dairy Grazing livestock Pigs Poultry Mixed -20 0 20 40 60 80 100 £000 per farm Key Profit Subsidies (Source: adapted from www.FT.com) Figure 2 Potential impact of indirect tax rises on meat prices per kg, 2023–2030 Before indirect After indirect Type of Meat tax increases tax increases Beef/Veal £24.24 £29.50 Chicken £7.60 £8.63 (Source: adapted from Tax beef, pork and chicken to help climate and health, EU urged – CGTN) Extract A The case for cutting out meat Around a third of Britons are reducing the amount of meat they eat or are cutting it out altogether. Are these consumers right to be cutting out meat? For a start, there are the greenhouse gases released as a result of producing food. The evidence is clear that switching to a plant-based diet would lower emissions. A UK study found that eating a 5 diet high in meat costs 7.2 kg carbon dioxide emissions per day, compared with 3.8 kg for vegetarians. It would also free up land for other uses. Nearly 80% of the world’s farmland is dedicated to rearing animals; a plant-based diet would cut the use of land for agriculture by 76%. The land currently used by grazing livestock could be used for “rewilding”, allowing the environment and animal species destroyed by meat farming to 10 recover. Our health and wealth would be better too. A study published in 2016 modelled what would happen to our health and the global economy if we all switched to vegetarian diets. The economic benefits of switching to plant-based diets could be as much as £700 billion to £1 trillion per year in terms of savings on healthcare costs and lost 15 working days due to ill health. Some economists recommend an increased indirect tax on animal products so that their prices reflect the cost of externalities. This could impact on European farmers, if adopted by the European Union. The tax could bring £35 billion to the EU, with around £15 billion of that going directly to farmers. The 20 rest would be used to bring down VAT on fruit and vegetables, and fund other policies to encourage healthy-eating diets both in and outside the EU. (Source: adapted from https://moneyweek.com/499842/the-economic- consequences-of-veganism December-28-2018) Extract B Businesses benefitting from meat-substitute products There is one group for whom the trend towards meat-substitute products is definitely a good thing: processed food manufacturers and retailers. Finest British beef burgers are priced at £6.61 per kg. The ‘fake burger’ (which is made mostly of pea protein) is priced at £21.81 per kg even though the ingredients used to 5 make them, such as mushrooms, peas and palm oil, are cheaper ingredients than meat. Despite high prices, demand continues to rise for these products. This might benefit shareholders, but is it doing any real good for the rest of us? A large food producer bought meat-substitute product maker Vegetarian Butcher in December 2018 and is moving towards a range with more meat-substitute products. 10 In 2017, Nestlé bought Sweet Earth, a California-based maker of vegetarian foods, and it is launching its own meat-substitute ‘Incredible Burger’. It expects its meat-substitute revenues to reach $1 billion by 2029. As subsidies are being cut in every area of farming, consumers ought to be willing to pay higher prices for all food products. If farmers are to stay in business, they need to find 15 additional sources of revenue such as oyster mushrooms, goji berries and basil. (Source: adapted from http://www.financialtimes.com/the-veganism-boom-does- more-for-food-company-profits-than-the-planet February-22-2019)
(f) Evaluate the likely microeconomic effects of a reduction in subsidies to farmers of animal products (Figure 1 and Extract B, line 14). Use a relevant diagram to support your answer. (20)
June 2025 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6Sources for use with SECTION B Read the following figures (1 and 2) and extracts (A and B) before answering Question 6. The market for meat and the growth of vegetarianism Figure 1 The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm) Cereals Dairy Grazing livestock Pigs Poultry Mixed -20 0 20 40 60 80 100 £000 per farm Key Profit Subsidies (Source: adapted from www.FT.com) Figure 2 Potential impact of indirect tax rises on meat prices per kg, 2023–2030 Before indirect After indirect Type of Meat tax increases tax increases Beef/Veal £24.24 £29.50 Chicken £7.60 £8.63 (Source: adapted from Tax beef, pork and chicken to help climate and health, EU urged – CGTN) Extract A The case for cutting out meat Around a third of Britons are reducing the amount of meat they eat or are cutting it out altogether. Are these consumers right to be cutting out meat? For a start, there are the greenhouse gases released as a result of producing food. The evidence is clear that switching to a plant-based diet would lower emissions. A UK study found that eating a 5 diet high in meat costs 7.2 kg carbon dioxide emissions per day, compared with 3.8 kg for vegetarians. It would also free up land for other uses. Nearly 80% of the world’s farmland is dedicated to rearing animals; a plant-based diet would cut the use of land for agriculture by 76%. The land currently used by grazing livestock could be used for “rewilding”, allowing the environment and animal species destroyed by meat farming to 10 recover. Our health and wealth would be better too. A study published in 2016 modelled what would happen to our health and the global economy if we all switched to vegetarian diets. The economic benefits of switching to plant-based diets could be as much as £700 billion to £1 trillion per year in terms of savings on healthcare costs and lost 15 working days due to ill health. Some economists recommend an increased indirect tax on animal products so that their prices reflect the cost of externalities. This could impact on European farmers, if adopted by the European Union. The tax could bring £35 billion to the EU, with around £15 billion of that going directly to farmers. The 20 rest would be used to bring down VAT on fruit and vegetables, and fund other policies to encourage healthy-eating diets both in and outside the EU. (Source: adapted from https://moneyweek.com/499842/the-economic- consequences-of-veganism December-28-2018) Extract B Businesses benefitting from meat-substitute products There is one group for whom the trend towards meat-substitute products is definitely a good thing: processed food manufacturers and retailers. Finest British beef burgers are priced at £6.61 per kg. The ‘fake burger’ (which is made mostly of pea protein) is priced at £21.81 per kg even though the ingredients used to 5 make them, such as mushrooms, peas and palm oil, are cheaper ingredients than meat. Despite high prices, demand continues to rise for these products. This might benefit shareholders, but is it doing any real good for the rest of us? A large food producer bought meat-substitute product maker Vegetarian Butcher in December 2018 and is moving towards a range with more meat-substitute products. 10 In 2017, Nestlé bought Sweet Earth, a California-based maker of vegetarian foods, and it is launching its own meat-substitute ‘Incredible Burger’. It expects its meat-substitute revenues to reach $1 billion by 2029. As subsidies are being cut in every area of farming, consumers ought to be willing to pay higher prices for all food products. If farmers are to stay in business, they need to find 15 additional sources of revenue such as oyster mushrooms, goji berries and basil. (Source: adapted from http://www.financialtimes.com/the-veganism-boom-does- more-for-food-company-profits-than-the-planet February-22-2019)
(g) Evaluate the likely microeconomic effects of an increase in indirect tax on animal products (Figure 2 and Extract A, line 17). Use a relevant diagram to support your answer. (20)
June 2025 · Paper 3 · Q2(a) 5 marks AO1=2, AO2=2, AO3=1 Diagram Hard
Data and extracts for question 2Sources for use with SECTION B Read Figure 3 and the following Extracts (E to G) before answering Question 2. The economy of India Figure 3: Selected economic data for India, 2006–2021 Human GDP per capita % people living in Year Development (US$) absolute poverty Index (HDI) value 2006 820.0 0.611 55.1 2016 1 714.3 0.624 27.7 2021 2 238.1 0.633 16.4 (Source adapted from: https://www.statista.com/statistics/1272613/india-multidimensional- poverty-index/; https://data.worldbank.org/indicator/; UN Human Development Reports) Extract E 135 million Indians escape absolute poverty in recent years Absolute poverty in India, measured by the number of people living on under US$2.15 a day, has fallen dramatically over the last 15 years. The government’s dedicated focus on improving access to sanitation, nutrition, cooking oil, banking services, drinking water and electricity has led to significant advances in these 5 areas. The $2.3 million provision of subsidised cooking oil has positively transformed lives, with a 14.6 percentage points improvement in the access to cooking oil. (Source adapted from: https://pib.gov.in/) Extract F Buffer stocks in India The Indian government is required to maintain a buffer stock of 11 million tonnes of wheat and 10 million tonnes of rice. The grains are purchased from farmers at the minimum support price and stored in secure warehouses across the country. India, once troubled by famine, has more recently managed to remain self-sufficient in 5 most food categories except edible oils, and is the world’s largest rice exporter. Even during the global health crisis 2020-2022, when the government distributed free food to nearly 800 million people, buffer stocks ran down but not out. Farmers are encouraged to produce more without any consideration of sustainability. (Source adapted from: https://ig.ft.com/india-population/) Extract G Population growth in India “The greatest obstacle in the path of overall economic development is the alarming rate of population growth,” was one Indian government minister’s view in 1967. In the 1970s, the Indian government took radical measures to try to prevent population growth, with little success. 5 Then, in the 1980s and 1990s, India began opening up its economy to the private sector. Policymakers began viewing a growing young population in the form of the so-called demographic dividend – when a majority of a country’s population is of working age (15-64 years) – as an engine for further economic development. In May 2023 India took over from China as the country with the highest population reaching 1.4 billion. However, 10 it needs enough well-paying jobs designed to serve the modern, urban economy. (Source adapted from: https://www.aljazeera.com/features/2023/4/18/overtaking-chinas- population-will-india-gain-or-lose)
(a) Using a demand and supply diagram, explain the cost of a subsidy on the market for cooking oil to the Indian government (Extract E, line 6). (5)
June 2024 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or Hard
Data and extracts for question 6The market for plastic in the UK Figure 1: Trend in the purchase of single‑use plastic bags in millions, UK, 2014 to 2021 2014 2015 2016 2017 2018 2019 2020 2021 7 500 2 120 1 750 1 130 1 040 627 496 197 Extract A 10p charge continues to reduce use of plastic carrier bags The 5p charge on single‑use carrier bags was introduced in supermarkets in 2015. The charge was increased to 10p in 2021 and extended to all businesses. The UK Environment Minister said that the plastic bag charge has ended the irrational purchase of billions of single‑use carrier bags, thereby protecting our landscapes and 5 ensuring millions of pounds are redistributed to worthy causes. This was needed as without this legislation, the market is not able to effectively manage the situation. Consumers are now in the habit of bringing reusable carrier bags when shopping. In addition to single‑use carrier bag charges, major retailers have offered bottle deposit return schemes and refillable food and cleaning product options. These provide 10 incentives to consumers to reuse their plastic containers. However, retailers have suggested that most customers do not wish to pay more for cleaning products in reusable packaging. With the average household income falling by 4.3% in 2023, sales of refillable cleaning products are expected to fall from 200 000 to 130 000 this year. 15 (Source adapted from: https://www.circularonline.co.uk/news/) Extract B Plastic packaging tax Food manufacturers have criticised the implementation of a new UK environmental tax, warning it will force them to increase prices for consumers. The 2018 tax was designed to provide incentives to businesses to use recycled plastic in packaging. Businesses manufacturing or importing 10 tonnes or more a year of 5 plastic packaging that contains less than 30% recycled plastic are taxed at £200 a tonne. Plastic packaging containing more than this will be exempt from the tax. Helene Roberts, Chief Executive of Robinson Packaging, said increased prices for the consumer would be an unintended consequence of the tax. “It will just create inflationary pressures within the supply chain and firms may need to pass this on.” A wide range of 10 businesses are affected by the new tax, including retailers importing items such as bin liners, drink bottles and carrier bags. Food manufacturers are particularly impacted as the industry uses 40% of packaging in the UK. (Source adapted from: https://www.ft.com) Extract C Single‑use cups An estimated 2.5 billion single‑use cups are used in the UK every year by consumers buying coffee from chains and cafes, creating approximately 25 000 tonnes of waste. Research has found that while a 25p charge on single‑use cups increases the use of reusable coffee cups in coffee shops, a discount on reusable coffee cups has no impact at 5 all on their use. A 25p charge on single‑use cups increases the use of reusable coffee cups by 3.4%. Environmental messaging in cafes, for example posters about litter, increases the use of reusable coffee cups by 2.3%. The availability of reusable cups leads to an increase of 2.5% whereas the distribution of free reusable cups leads to a further increase of 4.3%. 10 “While the increases for individual measures were modest, the greatest behavioural change was when the measures were combined,” said Wouter Poortinga of Cardiff University. (Source adapted from: https://www.theguardian.com/environment/2017/mar/30/)
(f) Evaluate the likely impact of a tax on plastic food-packaging. Use a diagram to support your answer. (20)
November 2021 · Paper 1 · Q4(b) 2 marks AO2=2 Calculation
Data and extracts for question 44 Patrick Street Productions produces musicals. Its latest production is ‘It’s a Wonderful Life’ and the total cost of this production is $200 000. The ticket price is $40. The theatre has a capacity of 300 seats. The company aims for revenue maximisation. If this is achieved, revenue from ticket sales will cover 30% of total costs. Charitable donations contribute 12.5% towards total cost and a government subsidy ensures the production covers all of its costs. (Source adapted from: https://www.cbc.ca/news/canada/british-columbia/a-bit-of- a-desperate-time-as-costs-rise-professional-theatre-companies-survive-rather-than- thrive-1.5489733)
(b) Calculate the value of the government subsidy necessary for this production to cover all of its costs. (2)
October 2020 · Paper 1 · Q1(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 11 Fuel duty is an excise tax imposed on the sale of petrol, included in the price paid by consumers, set at 58 pence per litre. (Source: https://www.gov.uk/tax-on-shopping/fuel-duty)
(a) Draw a supply and demand diagram to show the incidence of a specific petrol tax on consumers and producers. (4)
October 2020 · Paper 1 · Q1(b) 1 mark AO3=1 Multiple choice
Data and extracts for question 11 Fuel duty is an excise tax imposed on the sale of petrol, included in the price paid by consumers, set at 58 pence per litre. (Source: https://www.gov.uk/tax-on-shopping/fuel-duty)
(b) The indirect tax on fuel is increased in a market in which the price elasticity of demand is -0.1. Which one of the following is the most likely effect on consumer and producer surplus? (1) A Consumer surplus and producer surplus both decrease B Consumer surplus and producer surplus both increase C Consumer surplus decreases and producer surplus increases D Consumer surplus increases and producer surplus decreases
October 2020 · AS Paper 1 · Q3(a) 1 mark Multiple choice
Data and extracts for question 33 The ‘Energy Company Obligation’ is the government’s term for its programme to make houses in the UK more energy efficient.
(a) In the diagram below, the government grants a subsidy to energy suppliers to install loft insulation. This shifts the market supply curve for loft insulation from Supply1 to Supply2. Price of loft insulation Supply1 Supply2 J P1 K P2 L P3 M P4 Demand O Q1 Q2 Quantity of loft insulation The total amount spent by the government on subsidies is represented by the area: (1) A OP1JQ2 B OP3LQ2 C P3P1JL D P4P2KM
October 2020 · AS Paper 1 · Q4(a) 1 mark Multiple choice
Data and extracts for question 44 The UK Government uses a range of indirect taxes to affect the market prices and quantities of many goods and services.
(a) In the diagram below, the government imposes a specific tax on a product. This shifts the supply curve from Supply1 to Supply2. Price Supply2 H Supply1 P1 J P2 K P3 Demand O Q1 Q2 Quantity The government’s tax revenue is shown by the area: (1) A OP1HQ1 B P2P1HJ C P3P1HK D P3P2JK
October 2020 · AS Paper 1 · Q4(b) 3 marks AO1=1, AO2=1, AO3=1 Short answer
Data and extracts for question 44 The UK Government uses a range of indirect taxes to affect the market prices and quantities of many goods and services.
(b) Using an example, explain why the government imposes specific taxes on many goods and services. (3)
October 2020 · Paper 1 · Q6(a) 5 marks AO1=1, AO2=1, AO3=3 Diagram
Data and extracts for question 6The UK Rail Industry Figure 1: UK government subsidy to Northern, a train operating company in Northern England 290 287.9 285 280 277.0 275 0 2017 2018 (Source adapted from: https://www.theyworkforyou.com/wrans/?id=2018-10-18.181280.h) Figure 2: Rail passenger kilometres travelled per year in the UK, billions 70 65 billion (2018) 60 50 40 30 20 10 0 1985 1995 2005 2015 (Source adapted from: fullfact.org) Figure 3: Price of a single off-peak train journey, Edinburgh to Leeds Saturday 22nd December 2018 19:00 hours Adult Young Persons (16–25) Railcard £105.30 £69.50 (Source: https://www.lner.co.uk/buy-tickets/booking-engine) Extract A The case for nationalisation Privatisation has not made the rail industry cheaper to operate, despite the promise from one government source that it would see private companies bringing: “more competition, greater efficiency and a wider choice of services”. One reason, suggest the critics, is fragmentation. Instead of pushing British Rail into 5 the private sector as a single supplier the government chose to break it into three components of track, train operators and rolling stock i.e. the trains and carriages. This has encouraged each part of the rail industry to prioritise its own profits rather than collaborating to improve the system. Privatisation, meanwhile, never really worked. The rail network of 2 500 stations and 10 32 000 km of tracks was renationalised in 2001. This has encouraged the government’s transport secretary, a supporter of private sector involvement, to argue that the state Network Rail monopoly should be removed so that companies can bid to build new rail lines to upgrade the railway. The privately-owned train operators are now the subject of fierce criticism, due to 15 overcrowding and cancelled services. Private companies are supposed to compete to win a bid to be the train operator for a region for a short number of years. However in recent years the number of private companies bidding or renewing their contract as rail operators has fallen. In May 2018 the government rescued the East Coast line by renationalising it. The line had been run by the private rail operator Virgin Rail, which was 20 suffering lower passenger numbers and revenue than forecast. Some argue that there is a simple solution: reunite track and train in the only feasible manner, nationalisation. (Source adapted from: https://www.ft.com/content/d82848ca-f7ba-11e7-88f7-5465a6ce1a00) Extract B Southern Rail boss paid £495 000 The Chief Executive of Southern Rail, the private-sector train operator that has become associated with delays, losses, cancellations and strikes, was paid £495 000 last year. This increased calls for nationalisation and a maximum wage for executives at companies with government contracts. In contrast the average base pay for a train driver in the UK is 5 £47 705, although they can earn up to £63 000. Nearly a third of Southern Rail trains were late in 2016 as it tried to deal with a labour dispute that involved extensive strike action. The rail trade unions are opposed to planned changes to the role of train guards, which they claim will put passenger safety at risk. 10 (Source adapted from: Rob Davies, The Guardian 10 April 2017 https://www.theguardian.com/business/2017/apr/10/southern-rail-boss-double-pay-rise)
(a) Refer to Figure 1. Explain the likely effect of the change in subsidy levels between 2017 and 2018 on rail fares. Include a supply and demand diagram in your answer. (5)
June 2019 · AS Paper 1 · Q4(a) 1 mark AO2=1 Multiple choice
Data and extracts for question 44 In 2016 the average energy bill per household was £1 070 per year, excluding VAT, an indirect tax charged at 5%. (Source: adapted from ©Crown Copyright https://www.ofgem.gov.uk/ publications-and-updates/infographic-bills-prices-and-profits)
(a) The amount of VAT paid per year from energy bills by an average household in 2016 was: (1) A £53.50 B £214.00 C £1 019.00 D £1 123.50
June 2019 · AS Paper 1 · Q4(b) 2 marks AO2=2 Short answer
Data and extracts for question 44 In 2016 the average energy bill per household was £1 070 per year, excluding VAT, an indirect tax charged at 5%. (Source: adapted from ©Crown Copyright https://www.ofgem.gov.uk/ publications-and-updates/infographic-bills-prices-and-profits)
(b) On the diagram below annotate the effect of a rise in VAT on the market for household energy use. (2) Average annual household bill (£) S P1 D 0 Q1 Quantity of energy per household
June 2019 · AS Paper 1 · Q4(c) 1 mark AO1=1 Definition
Data and extracts for question 44 In 2016 the average energy bill per household was £1 070 per year, excluding VAT, an indirect tax charged at 5%. (Source: adapted from ©Crown Copyright https://www.ofgem.gov.uk/ publications-and-updates/infographic-bills-prices-and-profits)
(c) Define the term ‘indirect tax’. (1)
June 2019 · Paper 3 · Q1(e) 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or
Data and extracts for question 1Markets for food and drinks high in fat, salt or sugar (HFSS) Figure 1: UK market share of potato crisps, 2017 Market share Market share Price Firm Brand Size of firm of product (£) Walkers All Walkers 55.3% of which: 35 g 28.1% 0.45 Regular Standard Regular Max 50 g 7.4% 0.63 Sensations 40 g 2.0% 0.59 Doritos 40 g 4.7% 0.45 Other 13.1% KP KP 50 g 22.7% 0.52 Tayto Golden Wonder 4.2% <40g 3.1% 0.38 40g+ 1.1% 0.72 Other Other 17.8% (Source: adapted from https://academic.oup.com/restud/article/3108825/ The-Effects-of-Banning-Advertising-in-Junk-Food 6 April 2017) Extract A The effects of a total ban on advertising of HFSS foods Food and drinks which are high in fat, salt or sugar (HFSS) tend to be sold in highly concentrated markets. Tough new rules banning advertisements for HFSS products, such as those for confectionery, fizzy drinks and potato crisps, come into effect in July 2017 as a means to reduce consumption. The rules apply to media targeted at under-16s and will 5 mean a major reduction in the number of advertisements children see for HFSS products in posters near schools, in films targeted at children, on catch-up television and in social media if it is directed at children. There are three main factors that will determine the effectiveness of the intervention: first, whether advertising acts to expand the market share or steal rivals’ market share. 10 Secondly, how firms in the market adapt their behaviour in response to the ban. Thirdly, what substitute products do consumers turn to if they opted out of the targeted market. Results from a recent survey in the UK suggest that the total quantity of crisps sold would fall by around 15% in the presence of an advertising ban, or by 10% if firms respond with price cuts, since the ban acts to make the market more competitive and firms respond to 15 the ban by, on average, lowering their prices. The survey showed that following a ban, consumers are more likely to switch to another junk food than to a healthy food, which (in addition to the pricing response of firms) acts to partially offset any health gains from the policy. (Source: adapted from The Effects of Banning Advertising in Junk Food Markets, Dubois, Pierre; Griffith, Rachel, Review of Economic Studies Copyright © 2017, Oxford University Press https://academic.oup.com/ restud/article/3108825/The-Effects-of-Banning-Advertising-in-Junk-Food 6 April 2017 and https://www.asa.org.uk/news/tougher-new-food-and- drink-rules-come-into-effect-in-children-s-media.html 30 June 2017) Extract B Taxing HFSS foods and subsidising healthy eating widens inequality Since low-income groups spend a higher proportion of their income on food and tend to eat less healthily, they are the main targets of taxes on products that are high in fat, salt or sugar (HFSS). Subsidies on healthy food are seen as an alternative policy approach to encourage healthy eating. While data on the impact of such policies are scarce, a recent 5 study on the distributional impacts of HFSS taxes and healthy food subsidies found that these actually widened health and fiscal inequalities. The policies tend to be regressive and favour higher-income consumers. Taxes on unhealthy food increase prices which have a greater impact on low income groups rather than higher income groups. Lower income groups prefer to buy HFSS food. 10 Subsidies encouraged all income groups to buy more fruit and vegetables. However, those on higher incomes proved more responsive and the average share of budget spent on healthy food actually increased for the higher income groups who were more likely to buy the subsidised healthy food and then spend the savings they had enjoyed on yet more healthy food. The diets of the higher income groups before the subsidy tended 15 to be healthier. The choices of the higher income groups are more responsive to price changes. By contrast, lower income groups, if they responded to lower prices, often used the money saved to buy unhealthy items or something else entirely. The long-term benefits of a healthier diet are harder to grasp for consumers when information gaps exist. Often the immediate boost of a tasty treat is more appealing. Taxes and subsidies 20 do not change that. Other strategies are needed to promote healthy eating, especially education. (Source: adapted from Economist 5 October 2017 https://www.economist. com/news/finance-and-economics/21730033-study-suggests- lower-income-families-end-up-paying-more-their-food-taxing-fat and https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3031005 The Economic Journal September 2017 Vol 127 Issue 604) Extract C Tax on fatty foods in Denmark is an economic disaster Denmark introduced a specific tax on saturated fat in October 2011. Recognised as a world-leading public health policy, it was abandoned just 15 months later having been both an economic and political disaster. Indirect taxes of this sort are invariably regressive, disproportionately affecting the 5 elderly and the poor. The specific tax led to prices rising on average 15% for highest-fat products, yielding a total decrease of 5% in the intake of saturated fat from products such as minced beef and cream. 80% of Danish consumers did not change their shopping habits at all. The behavioural change was economically damaging as consumers switched to cheaper brands and crossed the border to Sweden and Germany to do their shopping. 10 Danish tax revenue fell as a result. (Source: adapted from https://iea.org.uk/in-the-media/press-release/ evidence-shows-a-fat-tax-would-hit-poorest-the-hardest 25 May 2013 and https://www.cambridge.org/core/journals/public-health-nutrition/article/ effects-of-the-danish-saturated-fat-tax-on-the-demand-for-meat-and-dairy- products/984CF03634C819D50E66C7B5DC5209DA/core-reader)
(e) Evaluate the likely microeconomic and macroeconomic effects of imposing a tax on HFSS foods. (25)
June 2018 · Paper 1 · Q2(a) 2 marks AO2=2 Calculation
Data and extracts for question 22 The number of individual weekly ticket sales from UK National Lottery games operated by Camelot was 73 million in the financial year 2015–2016. The sale price of each lottery ticket was £2. This figure included 24 pence of tax revenue on each ticket sold.
(a) Calculate the weekly revenue received by Camelot after paying the tax to the government. You are advised to show your working. (2)
June 2017 · AS Paper 1 · Q3(a) 1 mark AO1=1 Definition
Data and extracts for question 33 In 2015 the UK government cut subsidies for the installation of solar energy panels.
(a) Define the term ‘subsidies’. (1)
June 2017 · Paper 1 · Q3(a) 2 marks AO2=2 Calculation
Data and extracts for question 33 The Indian government has introduced a subsidy on domestic cooking gas cylinders in the city of Mumbai. The diagram below shows the effect following the introduction of the subsidy. Price per cylinder (Rupees) S S1 1023 526 455 D 0 1.5 1.8 Quantity of gas cylinders, daily (million) (Source: https://www.iocl.com/products/indanegas.aspx and http://indianexpress.com/article/business/business-others/lpg- subsidy-fixed-at-rs-568-price-to-change-after-march/)
(a) Calculate the total domestic cooking gas subsidy paid daily by the Indian government. You are advised to show your working. (2)
June 2017 · AS Paper 1 · Q3(b) 1 mark AO1=1 Multiple choice
Data and extracts for question 33 In 2015 the UK government cut subsidies for the installation of solar energy panels.
(b) The most likely effect of cutting subsidies for the installation of solar panels is to: (1) A increase producer surplus B decrease the provision of public goods C decrease consumer surplus D increase government expenditure
June 2017 · Paper 1 · Q3(b)(i) 1 mark Calculation
Data and extracts for question 33 The Indian government has introduced a subsidy on domestic cooking gas cylinders in the city of Mumbai. The diagram below shows the effect following the introduction of the subsidy. Price per cylinder (Rupees) S S1 1023 526 455 D 0 1.5 1.8 Quantity of gas cylinders, daily (million) (Source: https://www.iocl.com/products/indanegas.aspx and http://indianexpress.com/article/business/business-others/lpg- subsidy-fixed-at-rs-568-price-to-change-after-march/)
(b) Calculate the percentage share of the total subsidy received by: (i) consumers (1)
June 2017 · Paper 1 · Q3(b)(ii) 1 mark Calculation
Data and extracts for question 33 The Indian government has introduced a subsidy on domestic cooking gas cylinders in the city of Mumbai. The diagram below shows the effect following the introduction of the subsidy. Price per cylinder (Rupees) S S1 1023 526 455 D 0 1.5 1.8 Quantity of gas cylinders, daily (million) (Source: https://www.iocl.com/products/indanegas.aspx and http://indianexpress.com/article/business/business-others/lpg- subsidy-fixed-at-rs-568-price-to-change-after-march/)
(b) Calculate the percentage share of the total subsidy received by: (ii) producers (1)
June 2017 · AS Paper 1 · Q3(c) 2 marks AO2=2 Diagram
Data and extracts for question 33 In 2015 the UK government cut subsidies for the installation of solar energy panels.
(c) Annotate the diagram below to show the effect of removing the solar panel installation subsidy on the equilibrium price and quantity. (2) Solar panel installation market diagram Price of solar panels supply Pe demand Quantity of 0 solar panels Qe
June 2017 · Paper 1 · Q7 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or
7 In 2015 a report by Public Health England recommended the imposition of a 20% tax on the sale of soft drinks that contain high levels of sugar. Evaluate the likely microeconomic effects of such a tax.

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