In 2013, the Mexican Government was weighing up the introduction of a sales tax of one peso per litre on fizzy drinks. The Government aimed to reduce excessive fizzy drink consumption - 40% more fizzy drinks per person are consumed than in the United States of America. Several multinational fizzy drinks companies warned that they would exit the country if taxes were raised.
(a)[2]
Define ‘a sales tax’, using an example.
(b)[4]
Explain how private costs differ from social costs.
(c)[6]
Using a demand and supply diagram, analyse what happens when a tax is imposed on fizzy drinks.
(d)[8]
Discuss whether the economy of a country would be damaged if multinational companies moved out.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A tax on expenditure / an indirect tax on goods and services” …