Hungary has the highest obesity rate in Europe. Hungarians consume fewer vegetables than most other Europeans and a larger quantity of foods that may be viewed as demerit goods. In 2017, the Hungarian government brought in a tax on unhealthy food called the chips tax. This tax has been partly successful in shifting demand towards healthier foods. Some economists argue that governments ought to use price controls, as well as taxes, to affect the food market.
(a)[2]
Define the term demerit good.
(b)[4]
Explain how an extension in demand differs from an increase in demand.
(c)[6]
Analyse how an increase in indirect taxes affects income distribution and tax revenue.
(d)[8]
Discuss whether a government ought to set a maximum price on food.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A product that is more harmful than consumers appreciate / that the government sees as more harmful” …