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Use a diagram to explain how the burden of a tax is shared among producers and consumers when an ad valorem tax is placed on a good which has a relatively inelastic demand.


2.  a) Carefully distinguish between merit goods, demerit goods and public goods.

b) Evaluate the view that governments should always intervene in markets for such goods as cigarettes and alcohol.


3. a) Why are environmental problems considered to be an example of market failure?

     b) To what extent can government intervention correct this failure? (Paper 2, 2000)


1.    With the aid of a diagram, explain how the application of a flat rate tax (a specific/fixed amount) could reduce the amount of pollution produced by a chemical factory. (May 2009)


2.    Explain how direct provision of a public good by the state (government) can correct the problem of market failure. (May 2009)


3.    Explain how the burning of fossil fuels (e.g. coal) by industries could create a market failure and a threat to sustainable development. (Nov 2008)


4.    Nov 06 Paper 3 about pollution and tradable permits




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