In 2013, the Mexican Government was thinking about introducing a sales tax of one peso per litre on the selling price of fizzy drinks. The Government wanted to reduce fizzy drink consumption because people in Mexico drink 40% more fizzy drinks per person than in the United States of America. Several multinational fizzy drinks companies said they would leave the country if taxes were raised.
(a)[2]
Using an example, define ‘a sales tax’.
(b)[4]
Explain the distinction between private costs and social costs.
(c)[6]
Using a demand and supply diagram, analyse the effect of a tax being imposed on fizzy drinks.
(d)[8]
Discuss whether a country’s economy would be damaged if multinational companies relocated.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A levy on spending / an indirect tax on goods and services” …