In recent years there has been an increase in prices in Mexico. Indirect taxes have also been increased. Bus fares and food have become more expensive. In 2015, the Mexican Government was planning to cut its spending by US$8.3 billion.

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

1. [2] A tax on spending/the burden can be passed on to someone else (1) e.g. VAT/sales tax/tariffs (1).
2. [4] 1 mark each for each of two causes: ∞ a rise in the price of a substitute e.g. cars ∞ a fall/rise in income ∞ an increase in population ∞ an increase in employment ∞ an increase in the quality of bus travel ∞ increase in price of petrol/tax on petrol ∞ introduction of congestion charges ∞ increased concern for the environment ∞ increased advertising/more effective advertising 1 mark each for each of two explanations of the causes: ∞ car travel is a possible substitute ∞ bus travel may be seen as poor quality travel in some countries/may enable some people to be able to afford bus travel ∞ a higher population will mean there will be more people to travel ∞ more people may travel to and from work ∞ bus travel may improve in quality if buses are safer or there are bus lanes ∞ some people are switching away from car travel because of concern with the environment ∞ advertising may persuade some people to travel by bus
3. [6] Lower government spending will reduce total demand (1) reducing output (1) causing firms to cut back on the number of people they employ (1) causing cyclical unemployment (1). Mismatch between demand and supply of skills (1) results in structural unemployment. Fewer skilled/less qualified workers (1) less productive (1) making them less attractive to employers (1) less adaptive to change (1) structural/frictional unemployment may increase (1). Results in fewer teachers/staff in education (1).
4. [8] Up to 5 marks for why it should: Would raise total revenue (1) demand for food is price inelastic (1) so a good source of tax revenue (1) enabling the government to spend more on e.g. education and healthcare (1). May reduce the problem of obesity (1) improve health of population (1) reduce the burden on healthcare facilities (1). Reduce food wastage (1) lowering costs of waste disposal (1). Up to 5 marks for why it should not: Taxes on food are regressive (1) take a higher proportion of the income of the poor (1) food is a necessity (1) may mean poor cannot afford sufficient food (1) may cut back on other necessities (1) may increase poverty (1) thereby increasing inequality (1). A tax on food (1) may stimulate wage demands (1) increase costs of production (1) cause inflation (1) may increase government expenditure on healthcare (1) may lead to lower labour productivity (1) there may be tax evasion (1). Fall in demand results in less production of food (1) leading to reduced employment in agriculture and food processing industries (1).