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3 marksMarket Equilibrium

CAPE Economics Unit 1 · 2007 · Paper 2 · Question 3(b)(ii)a)

The government levies a per-unit excise tax on each packet of cigarettes sold.

Discuss the effect of the tax on the quantity of cigarettes bought and sold.

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Other parts of this question

  1. 3(a)(i)Define the term 'market structure' and identify two market structures present in your country.[4 marks]
  2. 3(a)(ii)State four major assumptions of perfect competition and provide an example of a perfectly competitive industry in your country.[6 marks]
  3. 3(a)(iii)Compare two market structures other than those mentioned in part (a)(i).[10 marks]
  4. 3(b)(i)Draw a diagram showing the effect of the tax on the cigarette market.[8 marks]
  5. 3(b)(ii)b)Discuss the effect of the tax on the price paid by the buyer.[3 marks]
  6. 3(b)(ii)c)Discuss the effect of the tax on the net price received by the seller after tax remittance.[3 marks]
  7. 3(c)(i)Define 'deadweight loss' and shade the region representing the deadweight loss of the cigarette tax on your diagram from (b)(i).[5 marks]
  8. 3(c)(ii)Define consumer surplus and producer surplus, indicating on the diagram the lost consumer surplus and producer surplus.[8 marks]

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