Section B Answer one question. (a) Distinguish between regressive and progressive taxes and explain whether you would use an income tax or a specific indirect tax to make post-tax incomes more equal. (b) Discuss whether subsidies on the production of all types of good will lead to an improved allocation of resources.

Mark scheme

Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

1. [8] Knowledge and understanding: ∞ For a definition of a regressive tax 1 mark ∞ For a definition of a progressive tax 1 mark (KU: up to 2 marks) Application: Explains that specific indirect taxes are regressive (Up to 2 marks) and their impact upon the equality of post-tax incomes (1 mark) Explains that income taxes can be progressive (Up to 2 marks) and their impact upon the equality of post-tax incomes (1 mark) (APP: up to 6 marks)
2. [12] Analysis: Explaining that merit goods are under-consumed because of information failure and that subsidies will reduce price and increase their consumption improving resource allocation. Up to 4 marks Explaining the impact of subsidies on other types of goods for e.g. demerit goods, public goods or private goods where resource allocation will not be improved. Up to 4 marks for each case explained (AN: up to 8 marks) Evaluation: Comparing the impact of providing subsidies on different types of goods (Up to 3 marks) and for a conclusion on whether they will improve the allocation of all types of good (1 mark) (EV: up to 4 marks)