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4 marksMarket Failure

CAPE Economics Unit 1 · 2015 · Paper 2 · Question 2(b)(ii)

A specific tax of $1 per pen is levied on the producer.

Analyse the total welfare effect (consumer surplus, producer surplus, government revenue, and deadweight loss) of the tax, referring to the diagram in (b)(i).

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Other parts of this question

  1. 2(a)(i)Define the term 'market equilibrium'.[2 marks]
  2. 2(a)(ii)Copy and complete Table 2 to show the quantity of pens demanded and supplied at prices 1, 2, 3, and 4.[5 marks]
  3. 2(a)(iii)a)Using the data from Table 2, draw a diagram displaying the demand curve and supply curve for pens.[3 marks]
  4. 2(a)(iii)b)Indicate the equilibrium price and quantity on the diagram drawn.[2 marks]
  5. 2(a)(iv)a)If the government sets a price of $2 per pen, state the name of this type of price intervention.[1 mark]
  6. 2(a)(iv)b)Explain, giving details, the market outcome at this price of $2 per pen.[3 marks]
  7. 2(b)(i)Illustrate the effect of the $1 specific tax on the diagram drawn in (a)(iii).[5 marks]

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