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0413 Class Notation

The document discusses the effects of imposing indirect taxes on alcohol, highlighting that such taxes aim to discourage consumption by increasing prices, which impacts consumers, producers, and government revenue. It also evaluates the potential introduction of a minimum price for alcohol in England and Northern Ireland, considering its effectiveness in reducing consumption and the challenges posed by black market sales. The analysis emphasizes the importance of price elasticity of demand in determining the success of these measures.

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yw1218956
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39 views2 pages

0413 Class Notation

The document discusses the effects of imposing indirect taxes on alcohol, highlighting that such taxes aim to discourage consumption by increasing prices, which impacts consumers, producers, and government revenue. It also evaluates the potential introduction of a minimum price for alcohol in England and Northern Ireland, considering its effectiveness in reducing consumption and the challenges posed by black market sales. The analysis emphasizes the importance of price elasticity of demand in determining the success of these measures.

Uploaded by

yw1218956
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

26

Do not write
outside the
box
3 1 Extract E (lines 1–2) states: ‘alcohol has traditionally been viewed as a demerit good,
subject to high indirect taxes’.

Explain the likely effects of imposing indirect taxes on alcohol.


[10 marks]
Diagram hurt1evidence no evaluation

I De ne demerit goods / indirect tax: a tax on expenditure, higher price —>


discourage consumption.

怊 了
T
4Hats
consumers 1producers
in total diagram
⼀⽐ 壍
how social
weave

p
s ⻛ 如 initial quit
i
i
剳雪 IR e I new quit after ta
芹
fi i
1

Q. l
• Consumers: equilibrium price rises from P0 to P1 —> consumer surplus is reduced by …
Tax incidence on consumers
RE EP
• Firms: tax incidence on producers is P0FGP2 —> tax burden on producers, a ects their
revenue/pro ts —>

• Govt: tax revenue (P1E0GP2) —> used to subsidize other health diet / discourage of
alcohol consumption (Q0-Q1) correct market failure, improve social welfare

• However, the size of government tax revenue / e ect of discouragement on consumption


will largely depend on PED.

Extra space

*26*
IB/M/Jun22/7135/1
28
Do not write
outside the
box
3 2 Extract F (lines 20–21) states: ‘Cheap alcohol is wrecking lives and livelihoods in England
as well as Scotland’.

Use the extracts and your knowledge of economics to assess whether a minimum price
for alcohol should be introduced in England and Northern Ireland.
[25 marks]

Min priceregulation Manprice


regulatio s
⼋
p
P ⼋

1
1
f.FI1 1
1
Pmin
Po
1 D l l fa
l l l e l l ne
a Qo Qs QD

[Link]
⼼态 demand
E ect of minimum price:
• Excess supply : stock piling up —> sell at a discount in black market (informal market) —>
young people can still purchase cheap alcohol in black market —> min price regulation
becomes ine ective
• E ect of discouragement on consumption depends on PED (price elasticity of demand)

Sample structure:

Paragraph 1 introduction: de ne minimum price + why minimum price is necessary (Extract F


Line 20 )

[draw minimum price diagram]

P2: minimum price is e ective (2 arguments)


After minimum price Pmin is imposed, contraction along demand curve from Q0 to Q1 —>
from Extract F, sales fell more signi cantly for previously cheap cider (36%)

P3: minimum price is not necessarily e ective (2 arguments)


From extract F, the size of reduction in consumption very across income groups/di erent
alcohol products.

Disequilibrium: excess supply …

Time periods: sales does not fell in the rst nine months

*28*
IB/M/Jun22/7135/1

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