A government plans to tax plastic microbeads used in some cosmetics. Scientists estimate that microbeads enter rivers and that removing them from water trea...

Assessment: Economics 9214 | Paper 1 Mock 01 | Written Paper 1 Subject: Economics - 9214

Question 1 Report

A government plans to tax plastic microbeads used in some cosmetics. Scientists estimate that microbeads enter rivers and that removing them from water treatment systems is expensive.

(a) What is meant by a corrective tax? [1]
(b) Explain why the tax could make firms reduce the supply of cosmetics containing microbeads. [2]
(c) Calculate the tax revenue if 3 million containers are sold and the tax is $0.40 per container. [1]
(d) Analyse one reason why the tax may not completely eliminate river pollution. [2]

Answer Details

(a) A corrective tax is a tax designed to reduce a negative externality by making private costs closer to social costs. [1]

(b) The tax raises firms' cost per container of cosmetics containing microbeads. [1] Firms may then reduce supply or switch to less polluting ingredients. [1]

(c)

\[3\,000\,000\times\$0.40=\$1\,200\,000\]

Tax revenue is $1 200 000. [1]

(d) Pollution may continue because some consumers may still demand the cosmetics despite the higher price. [1] In addition, other firms or products may continue to release pollutants into rivers, so taxing microbeads alone cannot eliminate all river pollution. [1]

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