Economics 9708 · AS & A Level
Taxes and subsidies
100 practice questions on Taxes and subsidies, with worked solutions and instant marking.
Which government policy has increased equality as one of its consequences?
Feb/March 2016
Which government policy used to reduce the effects of income inequality is paired correctly with one of its benefits and one of its drawbacks?
Feb/March 2016
The diagram presents the Gini coefficient for four countries from 1975 to 2010. Which country showed the largest shift towards a more equal distribution of income during this period?
Feb/March 2017
Which of the following statements about transfer payments is correct?
Feb/March 2018
What does the Kuznets curve show?
Feb/March 2019
Which pairing of policy changes would be most likely to shift income away from the richest households and towards the poorest households in an economy?
Feb/March 2020
What does the term transfer payment mean?
Feb/March 2021
The following three taxes are named. • a sales tax (VAT) applied to fuel • a specific tax at 10% on cigarettes • the percentage rate of income tax on individual earnings rises as taxable income rises Which combination shows the effect of each tax type?
Feb/March 2022
At what point is a policy that transfers income from wealthy people to poorer people most appropriate?
Feb/March 2022
The table presents Gini coefficients for income and wealth in two countries. Which statement is correct?
Feb/March 2023
Explain the likely economic causes of income inequality and assess whether inequality of income can benefit an economy.
Feb/March 2023
Which alterations in direct and indirect tax are likely to widen inequality in the distribution of income in a developed economy?
Feb/March 2023
In a country, an income tax is applied so that the first $10 000 of earnings is tax-free, the following $20 000 is taxed at 20% and any earnings above $30 000 is taxed at a maximum rate of 40%. In addition, a sales tax of 10% is charged on most goods. Which mix of tax changes would be most likely to produce a more equal income distribution in the country?
Feb/March 2024
The Lorenz curves shown in the diagram illustrate different distributions of income and wealth. Initially, income in a country is distributed more evenly than wealth. Over a period, the income distribution becomes less equal, while the wealth distribution becomes more equal. Which movement would represent the effects of these changes on the country's distribution of income and wealth?
Feb/March 2024
Why is an individual’s wealth more difficult to measure than their income?
Feb/March 2025
Which fiscal policy combination would lower both the inflation rate and income inequality?
Feb/March 2025
At what point does income become more evenly distributed?
Feb/March 2025
Which tax is most likely to have a regressive effect?
May/June 2011
A country operates a negative income tax. In the diagram, the curve NT represents the country’s original tax schedule. If a change in the tax rate shifts the schedule to NT1, what is the most likely effect on incentives and on equity?
May/June 2013
Income inequality may be assessed using the Gini coefficient. It is measured on a scale from 0 to 100, and a larger figure indicates a higher level of inequality. The table below gives three Gini coefficient values for four OECD countries. The first comes from wages alone, the second includes government welfare payments, and the third includes welfare payments together with government spending on health and education. In which country did welfare payments contribute most to income redistribution?
May/June 2014
Income inequality may be assessed using the Gini coefficient. Using a scale from 0 to 100, a larger figure indicates a higher level of inequality. The table below presents three Gini coefficient figures for four OECD countries. The first is based on wages, the second includes government welfare payments, and the third includes welfare payments plus government health and education spending. In which country did welfare payments contribute most to income redistribution?
May/June 2014
What is one advantage of means-tested benefits compared with universal benefits?
May/June 2014
Which combination of policy changes is most likely to shift income from the richest households to the poorest households in an economy? (policies: excise duties; means-tested benefits; universal benefits)
May/June 2015
Which pairing of fiscal policy measures would be most effective in lowering income inequality?
May/June 2016
The table gives the Gini coefficient values for several countries in 2007. Based on the information above, which statement is correct?
May/June 2017
Which statement is most likely to explain why a government chooses to raise the highest rates of tax on personal income?
May/June 2017
The Lorenz curves in the diagram illustrate how income and wealth are distributed differently. Income in a country is shared more evenly than wealth. Over a period, the distribution of income becomes less equal, but the distribution of wealth becomes more equal. Which movement would indicate the effects of these changes on the distribution of income and wealth within the country?
May/June 2017
The diagram illustrates a Lorenz curve and marks two regions, X and Y. How is the relevant Gini coefficient calculated?
May/June 2017
A country's government aims to create a more even distribution of income. Which mix of measures is most likely to be effective in achieving this objective?
May/June 2017
Which feature of a tax and benefits system is regressive?
May/June 2018
Which tax would enable a government to create a more even distribution of income after tax?
May/June 2018
Distinguish clearly between income and wealth.
May/June 2018
The table gives figures for the average incomes of the richest 20% of households and the poorest 20% of households in the UK (2015–2016), as well as the impact of government taxation and benefits on average income. What can be concluded from the table’s information?
May/June 2019
Which policy is likely to be the least effective way of creating a more equal distribution of income among households?
May/June 2019
The diagram displays two Lorenz curves. If the Lorenz curve moves from L1 to L2, which of the following is least likely to have brought this about?
May/June 2020
At what point will a society have reached an equitable distribution of income?
May/June 2020
The diagram illustrates two Lorenz curves. If the Lorenz curve moves from L1 to L2, which is least likely to have caused this change?
May/June 2020
What would economists regard as an increase in transfer payments?
May/June 2021
A country has a Gini coefficient of 0.40. In this country, the lowest-income earners do not pay any income tax. The government raises the tax rate for the highest-income earners, leading to a more equal spread of income. What conclusion could be drawn from this?
May/June 2021
A government wants to reduce the Gini coefficient. Which policy is most likely not to achieve that policy objective?
May/June 2021
A country has a Gini coefficient of 0.40. The lowest-income earners in this country do not pay income tax. The government raises the tax rate for the highest-income earners, and this leads to income being shared more equally. What can be concluded from this?
May/June 2021
The table presents the amount of direct taxes paid by different households in the UK in 2017–2018. Which positive economic statement could be drawn from the table?
May/June 2022
A government wants to redistribute income from wealthier citizens to poorer citizens. Which policy would it be least likely to adopt?
May/June 2022
Explain what economists mean by a public good and discuss why providing such a good is linked to market failure.
May/June 2022
A government has a policy objective of reducing income inequality. It is considering three policies. Which combination of policies would be the most effective? (raise marginal tax rate 40%→50%, raise minimum wage, provide a subsidy for battery-powered cars costing over $40 000)
May/June 2023
The diagram presents the Lorenz curves for Norway (N) and India (I). What conclusions can be drawn by comparing the Lorenz curves?
May/June 2023
To show how income distribution changes, the Kuznets curve graphs gross domestic product per capita against an economic variable X. What is variable X?
May/June 2023
The diagram depicts a Lorenz curve in which two areas, X and Y, are marked. How is the matching Gini coefficient calculated?
May/June 2023
Which factor is most likely to result in a more even distribution of income over the long term?
May/June 2023
The diagram presents the Lorenz curves for Norway (N) and India (I). What conclusion can be drawn by comparing the Lorenz curves?
May/June 2023
To show how income distribution changes, the Kuznets curve sets gross domestic product per capita against the economic variable X. What is variable X?
May/June 2023
The diagram presents a Lorenz curve with two areas, X and Y, marked. How do you calculate the matching Gini coefficient?
May/June 2023
Explain how the Gini coefficient is used to measure income inequality and consider the relative strength of two economic reasons that could account for this in a low-income country.
May/June 2024
The table presents the Gini coefficient values for several countries in a particular year. On the basis of this information, which statement is correct?
May/June 2024
Describe what the Gini coefficient means and the range of values it can take.
May/June 2024
Describe what the Gini coefficient means and the range of values it can take.
May/June 2024
What would be an example of wealth?
May/June 2025
The graph illustrates a person’s income before and after income tax has been deducted. Which alteration to this income tax system is the most progressive?
May/June 2025
With the help of a diagram, explain the impact of introducing an effective minimum price for a product and consider how consumer surplus for that product is affected.
May/June 2025
What might lead an individual to be caught in the poverty trap when their income goes up?
May/June 2025
Which policy would help to lessen income inequality?
May/June 2025
Which goods ought a government to tax if it wants the tax system to become more progressive?
Oct/Nov 2011
The diagram shows how a negative income tax system (NIT) operates: households earning more than Yt pay tax, while households earning less than Yt obtain a tax credit. What would be the effects of reducing the effective tax rate, causing the NIT schedule to move from NIT1 to NIT2?
Oct/Nov 2011
A government introduces a subsidy to reduce the price of heating oil, sets maximum rents for apartments and establishes a national minimum wage rate. For each of these, who is intended to benefit?
Oct/Nov 2013
The table sets out a comparison of some of the properties of universal benefits and means tested benefits. Which pairing is correct?
Oct/Nov 2013
Which mix of government interventions would be designed to help the lower income group in an economy?
Oct/Nov 2014
What limits the use of income taxes for redistributing income to poorer groups in society?
Oct/Nov 2014
Which tax is most likely to be regressive in nature?
Oct/Nov 2015
Which situation would be most likely to create a conflict between efficiency and equity?
Oct/Nov 2015
Adjustments to a government’s welfare policies lower the number of people who qualify for welfare benefits. Why could these adjustments decrease income inequalities and the extent of poverty?
Oct/Nov 2015
A government decides to revise the tax system in order to achieve greater equity. Which alteration will it make?
Oct/Nov 2016
Which measure would be least likely to enable a household to escape the poverty trap?
Oct/Nov 2016
In what ways, if at all, do fiscal policies differ from monetary policies and supply side policies?
Oct/Nov 2017
At what point is a transfer payment most likely to form an individual’s principal source of income?
Oct/Nov 2018
What is one purpose of a transfer payment?
Oct/Nov 2018
What factor would help to account for the fall in wage inequality in a country during the post-2008 economic recession?
Oct/Nov 2018
Which combination of policies would lower income inequalities in a country?
Oct/Nov 2018
The diagram illustrates an economy’s Lorenz curve (VW). How is the Gini coefficient for this economy worked out?
Oct/Nov 2018
The article states that many in the US believe inequality is not equitable. What is the difference between equality and equity?
Oct/Nov 2018
The Kuznets curve is founded on empirical evidence and supports the view that, as an economy develops, market forces initially widen income inequality and later narrow it. Explain this hypothesis and assess whether it still holds for both developing and developed economies.
Oct/Nov 2018
A government policy benefits older people while disadvantaging younger people. Which measure would be most likely to correct this imbalance?
Oct/Nov 2019
Governments frequently seek to narrow income inequalities. The diagram illustrates the effects of applying taxation and benefits in an attempt to reach this objective. What can be concluded about the effects of taxes and benefits from the diagram?
Oct/Nov 2019
Which alterations to direct and indirect taxes are most likely to widen inequality in the distribution of income in a developed economy?
Oct/Nov 2019
Explain what is meant by a normal good and comment on how total utility, marginal utility and a consumer’s demand curve for that good are related.
Oct/Nov 2019
Analyse and discuss whether the economic theory of wages can explain why there are inequalities in wage rates in a country.
Oct/Nov 2019
Which statement gives the best description of a transfer payment?
Oct/Nov 2020
What must happen for an action to be treated as a transfer payment?
Oct/Nov 2020
How is a transfer payment classified?
Oct/Nov 2020
What shows that income has been distributed more equally?
Oct/Nov 2020
Which pair of policies is most likely to cut the number of low-paid employees who are trapped in poverty? an individual’s tax-free income tax allowance / the national minimum wage in real terms
Oct/Nov 2020
The diagram depicts a Lorenz curve, with two areas, X and Y, marked. How is the associated Gini coefficient calculated?
Oct/Nov 2020
What characteristic distinguishes a progressive income tax?
Oct/Nov 2021
Which mix of policies is most likely to lessen income distribution inequality?
Oct/Nov 2021
The diagram illustrates the Kuznets curve. Which statement is correct about the description of an economy and the matching letter on the Kuznets curve?
Oct/Nov 2021
Which statement accounts for why a government chooses to raise the top rates of tax on personal income?
Oct/Nov 2021
Which changes are most likely to lower income inequality within an economy?
Oct/Nov 2021
What does the term transfer payment mean?
Oct/Nov 2022
Which kind of economic policy is most likely to be judged the most effective by a government whose main objective is greater income equality?
Oct/Nov 2022
Which policy is likely to be the least effective method for creating a more even distribution of income among households?
Oct/Nov 2022
What condition must be met for an action to be classified as a transfer payment?
Oct/Nov 2023