Markscheme HYE 2022

Date Teacher name Grade Subject & Duration Maximum

Code Marks

28/11/202 Ms. Shantala, Economics 1 h 15 m 50

9
2 Ms.Riddhi 0455/22

Topic(s) Ch 1 to 16

Section A
1 A tax on high fat foods

Health issues are causing problems in many countries. For example, obesity, that is
being
significantly overweight, is becoming an increasing problem in the United States
(US), where one in three people are obese. The two main causes of obesity are
eating too much high fat food and lack of exercise.

In a free enterprise economy, producers are driven by profits producing goods and
services that are in high demand. The supply of factors, chiefly that of labour is
increased in the short run.

Obesity causes a number of both private and external costs. These include diabetes,
heart disease and breathing problems. In most countries, health care provision is
under stress with demand exceeding the resources available to supply it. Dealing
with health problems caused by obesity prevents other health problems being
treated. The health care problems experienced by those suffering from obesity also
result in working days being lost through sickness and a general decline in
productivity.

High fat food is usually consumed more by the poor than the rich. This is not always
through choice but because in some poor areas there is less fresh food available for
people to buy. The poor also spend a higher proportion of their income on food than
the rich. The government is well aware of how taxation may help reduce the
consumption of chocolates and has proposed that chocolates be taxed. As a result
of this the average price of a kilogram of chocolates has shot up from $10 to $12 and
the quantity demanded has reduced to 600,000 units from 800,000 units.

A range of government measures has been proposed in the US, which in practice is
a mixed economy; to reduce obesity. These include subsidising low fat food,
advertising the benefits of healthy eating and exercising, and taxing high fat foods,
such as chocolate, and high sugar drinks. In the US, chocolate is often cheaper than
healthy foods such as fruit and vegetables.
Taxes are already placed on a range of harmful products including cigarettes. In the
past, attempts to reduce smoking by raising the tax on cigarettes have proved not to
be very effective. This is largely because people become addicted to smoking.

1 (a) What is meant by external costs? [2]

1 (a) 2 marks for costs which have a harmful effect on third parties/those not
involved with
producing or consuming the product.
2 marks for social costs minus private costs.
1 mark for harmful effects (credit an appropriate example such as pollution). Do not
credit just repetition of ‘costs’.
1 mark for identifying those affected, i.e. third parties/others/those not involved with
producing or consuming the product (credit an appropriate example such as those
living neara polluting factory).
Note: No marks for general comment referring to the impact on
people/society/community (confusion with social costs). [2]

(b) What evidence is there in the extract of the economic problem? [2]

b) 1 mark for demand for health care is exceeding the resources available to supply
it.
1 mark for this indicates that wants exceed resources/there is a problem of scarcity
or
defining the economic problem.
1 mark for dealing with health problems caused by obesity prevents other health
problems being treated. [2]

(c) Why may obesity lead to an increase in government spending? [3]

(c) 1 mark for it may increase government spending on health care because of the
health problems it creates.
1 mark for it may increase government spending on sickness benefits because
people may be unable to work or may be off sick.
1 mark for may increase government spending on health campaigns/advertising,
healthy eating and/or exercise.
1 mark for government spending on subsidising low fat food. [3]

(d) Analyse how resources are spent in a mixed economy. [5]

A mixed economy consists of resource allocation by both public and private sectors
(1)
Up to 3 marks for analysis of the role of the public sector:
Government production of goods which private sector is unable/unwilling to do (1)
government sets prices (1)
Government influencing prices through taxes and subsidies (1)
Government laws and regulations to protect public (1)
Government redistributing incomes (1)
Up to 3 marks for analysis of the role of the private sector:
Role of price mechanism (1) responding to changes in demand and supply (1)
signaled by price changes (1)
resources moving to making products in increasing demand (1) away from
products falling in demand (1) profit incentive (1) creating an efficient use of
resources (1)
Those earning the highest income (1) have the greatest purchasing power (1)
differences in income provide incentives (1)

(f) Does the extract suggest that the demand for cigarettes is price elastic or price
inelastic? Explain your answer. [2]

(e) 1 mark for inelastic demand.

1 mark for the extract mentions that smoking is addictive/raising tax on cigarettes
has not proved effective.
1 mark for the quantity of cigarettes demanded is likely to change by less than the
change in price/defining inelastic demand. [2]

(g) Discuss whether the US Government should tax chocolate. [6]

(e) Why it should, e.g. it may

• raise revenue
• reduce obesity
• reduce the consumption of chocolate
• reduce the external costs associated with obesity (diagram may be used).
Why it should not, e.g.
• likely to be a regressive tax
• eating high fat foods is not the only cause of obesity
• the poor may not have easy access to healthy foods
• may just switch to other high fat foods
• demand may be inelastic
• may reduce employment in the chocolate industry
• may reduce GDP.
Up to 2 marks for discussing why another policy may be more effective.
Maximum of 4 marks for a list or list-like approach.
Maximum of 5 marks for a one-sided discussion. [6]

(h) Calculate the elasticity of demand for chocolates in the US and comment of the
value [4]

Q dd’d change = 200000/800000 = 1/4

Price change 2/10 = 1/5

¼ *5/1 = 5/4 = 1. 25
1 mark for formula
1 mark for working
1 mark for answer
1 mark for comment of elastic 1 mark for 1% change in price leads to a greater
proportion change in q dd’d 1 mark for negative signs to be ignored
(g) Discuss the economic arguments for and against providing free hospital
treatment to patients. [6]

Up to 4 marks for why it should:

It may increase health (1) increase life expectancy/reduce death rate (1) improve
living standards/economic development (1)
It would provide access to the poor (1) reduce poverty/provide a necessity (1)
The social benefit of hospital treatment is greater than the private benefit (1)
provides external benefits (1) e.g. better quality/higher output/economic growth (1)
higher labour productivity (1) may be under-consumed/under-produced (1) if left to
market forces (1) people may not appreciate private benefits/benefits to themselves
of hospital treatment (1)
People will have more money to spend on other items (1)
Up to 4 marks for why it should not:
May increase government spending (1) opportunity cost (1) government spending
on e.g. education could be higher (1) taxes may be higher (1) leading to demand-pull
inflation (1)
Some of those treated could afford to pay (1) in this case not a good use of
government funds (1)
May result in over-consumption (1) people seeking treatment who do not need it
(1).
May reduce the work incentive of potential consumers (1) as people will need
less income to pay for healthcare (1)
The quality of healthcare may fall (1) loss of profit motive (1) may reduce e.g.
innovation (1)
May encourage people to take greater risks (1) e.g. eat less healthily (1).
Government could charge for healthcare/allow private sector to charge for
healthcare to get more tax revenue (1) to spend on e.g. education (1) taxes could be
lower (1)

Guidance
6 A response may develop a
mixture of relevant points to
achieve up to 4 marks on either side.
Maximum of 3 marks for a list like approach.

Section B