Hungary has the highest obesity rate in Europe. Hungarians consume fewer vegetables than most Europeans and eat more foods that may be classed as demerit goods. In 2017, the Hungarian government brought in a tax on unhealthy food called the chips tax. This tax has had some success in shifting demand towards healthier foods. Some economists argue that governments ought to use price controls as well as taxes to influence 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 the effects on income distribution and tax revenue resulting from higher indirect taxes.
(d)[8]
Discuss whether a government should introduce 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 good that is more harmful than consumers realise / that the government judges to be harmful” …