Economics · May / June 2026 · Paper 22 · Question 4

0455

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The UK Government imposes an indirect tax on a range of products. However, some goods and services do not have an indirect tax on them. These include books, children’s clothes and cakes. UK clothes firms would like the indirect tax removed from adults’ clothes. In 2023, there were some mergers between UK clothes firms. A year later, the UK Government planned to put an indirect tax on private sector school fees.

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4(a)[2]
Identify two characteristics of an economic good.
uses (scarce) resources to produce it (1)
has an opportunity cost (1)
scarcity (relative to demand) (1). 2 If more than 2 reasons are given, consider the first 3.
4(b)[4]
Explain two reasons why demand for cakes may increase. Logical explanation which might include:
Rise in incomes (1)
increase purchasing power (1)
Rise in the price of a substitute / e.g. (1)
makes cakes appear relatively cheaper (1)
An advertising/marketing campaign (1)
that persuades people to eat more cakes (1)
A fall in the price of a complement / e.g. (1)
makes joint purchase appear relatively cheaper (1)
An increase in population/change to younger population (1)
more people who eat/consume cakes (1)
A change in tastes and preferences/a celebration/healthier cakes/better quality cakes (1)
incentivising cake consumption (1). 4 One mark each for each of two reasons identified and one mark for each of two reasons. If more than two reasons are given, consider the first three. Do not accept a decrease in the price of cakes.
4(c)[6]
Analyse the effects of taxing private sector school fees. Coherent analysis which might include:
Increase the costs of providing private sector education (1)
increase the price of private sector education (1)
reduce demand for private sector education/school fees are less affordable (1)
some children will now not attend school at all/attend school less (1)
cause some private sector schools to close/reduce supply (1)
reduce employment in the private sector (1)
Less to spend on other goods (if keep private education) (1)
Increase demand for state (public sector) education (1)
increase employment in state education (1)
increase government spending on public sector schools (1).
Raise tax revenue (1)
which can reduce a budget deficit/could be used to spend on e.g. healthcare (1). 6 Note: Listing any effects Max 3 marks.
4(d)[8]
Discuss whether or not a government should encourage clothes firms to merge. In assessing each answer, use the table opposite. Coherent discussion which might include: Why they should encourage a merger:
may prevent the output of clothes being reduced
may prevent closure/unemployment
may enable the new firm to take advantage of economies of scale
may lower costs of production
may lower prices
may increase exports
may increase government tax revenue Why they should not encourage a merger:
may cause new firm to experience diseconomies of scale
may give the new firm monopoly power
may raise prices
may reduce quality
may lower choice
rationalisation may increase unemployment.
Additional production may create externalities 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 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 Guidance Level Description A mark of zero should be awarded for no creditable content. Max L2 if no reference to context of question. 1 reference to either context (government decision or clothing firms, is enough)

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