Economics · May / June 2026 · Paper 21 · Question 3

0455

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The question as text

Many governments tax petrol. As drivers switch to electric vehicles, this revenue will be lost. However, tax revenue may come from other sources if a country’s production possibility curve (PPC) shifts to the right. Tax revenue may be used for a variety of purposes including subsidising public transport, for example bus transport.

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3(a)[2]
Define ‘tax’. A (mandated/legally required) payment/levy (1)
made to a (local) government (1)
by business/workers/consumers / on income/expenditure/profits (1)
as a source of government revenue (1)
3(b)[4]
Explain two causes of a shift to the right of a country’s PPC. Logical explanation which might include:
Increase in population / rise in birth rate (1)
rise in size of labour force / amount of labour (1)
Discovery of natural resources (1)
rise in quantity of resources (1)
Increase in immigration (1)
more entrepreneurs (1)
More investments / FDI (1)
rise in amount of capital (1)
Land reclamation (1)
rise in quantity of land (1)
Improved education / skills / qualification (1)
rise in productivity/efficiency (1)
Improved healthcare (1)
rise in quality of factors of production
Advances in technology (1)
rise in in productive capacity / productive potential / potential output / ability to produce more (1)
4 One mark each for each of two causes identified and one mark for each of two explanations.
3(c)[6]
Analyse the advantages a car firm may gain from specialising in the production of luxury electric cars. Coherent analysis which might include:
(Luxury) electric cars may be in high demand (1)
high revenue / income (1)
high profits (1).
Can enable car firms/workers to develop skills (1)
raise quality (1)
increase productivity/efficiency (1)
Luxury products can be sold at higher prices (1)
good reputation / brand loyalty (1)
less competition / inelastic (1).
May be subsidised (1)
reducing cost of production (1).
May enable car firms to take advantage of economies of scale (1)
example (1)
Incomes tend to rise in most countries (1)
increasing consumers’ ability to buy luxury products (1)
6 Maximum 3 marks for only identification
3(d)[8]
Discuss whether or not a government should subsidise bus transport. In assessing each answer, use the table opposite. Coherent discussion which might include: Why it should:
may reduce price – encourage bus transport
may lower use of cars
may reduce pollution
may reduce congestion
may help those on low incomes
may increase employment. Why it should not:
may encourage inefficiency
may need to raise tax / increase a budget deficit
may discourage people from walking / cycling
will involve an opportunity cost. Level Description A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Guidance Level Description There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 A mark of zero should be awarded for no creditable content.

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