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Date May 2019 Marks available 10 Reference code 19M.1.HL.TZ2.1
Level Higher level Paper Paper 1 Time zone Time zone 2
Command term Explain Question number 1 Adapted from N/A

Question

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

[10]
a.

Evaluate the view that the most effective way in which the government can discourage the consumption of demerit goods is through government regulations.

[15]
b.

Markscheme

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

Answers may include:

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.

a.

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

Answers may include:

Evaluation may include: advantages and disadvantages of government regulations; consideration of alternatives such as minimum prices, taxation, negative advertising.

b.

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.

a.

Candidates were not always clear about what represents a government regulation. The syllabus describes indirect taxation, in the relevant paragraph, as a market-based policy, and regulation, a ban and so forth, as being distinct from market-based policies. By declaring indirect taxes to be regulations some candidates restricted their ability to effectively address the question. Responses that clearly identified what regulations are tended to provide the best real-world examples as a result.

b.

Syllabus sections

Last exams 2021 » Section 1: Microeconomics » 1.4 Market failure » Types of market failure » Negative externalities of production and consumption
Last exams 2021 » Section 1: Microeconomics » 1.3 Government intervention » Price controls » Price floors (minimum prices): rationale, consequences and examples
Last exams 2021 » Section 1: Microeconomics » 1.4 Market failure » Types of market failure
First exams 2022 » Unit 2: Microeconomics » 2.7 Role of government in microeconomics » 2.7.1 Reasons for government intervention in markets
Last exams 2021 » Section 1: Microeconomics » 1.3 Government intervention » Price controls
Last exams 2021 » Section 1: Microeconomics » 1.3 Government intervention
Last exams 2021 » Section 1: Microeconomics » 1.4 Market failure
First exams 2022 » Unit 2: Microeconomics » 2.7 Role of government in microeconomics
Last exams 2021 » Section 1: Microeconomics
First exams 2022 » Unit 2: Microeconomics
First exams 2022
Last exams 2021

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