WJEC · Microeconomics · Government intervention in markets
WJEC Economics past paper questions: Government intervention in markets
Every WJEC question on Government intervention in markets from 2016 to 2025: 15 data response questions, 2 short answer questions and 3 multiple choice questions. It covers Demand, supply and elasticity, Macroeconomic objectives and policy, Poverty and inequality and Market failure. Each question links to its paper, mark scheme and examiner report.
SubtopicsDemand, supply and elasticity 4Macroeconomic objectives and policy 3Poverty and inequality 1Market failure 1
Data response questions on government intervention in markets
Case study: Heating Up
Using Figure 1, calculate the approximate percentage change in the price of natural gas from August 2016 to August 2022.
Case study: Heating Up
Using a diagram, discuss the advantages of using indirect taxes to reduce the sales of wood-burning stoves.
Examiner insight
- What to cover
- Draw the indirect tax, then complete the argument: the tax raises price and cuts the quantity of stoves sold, and that is an advantage because it reduces the negative externality and corrects the market failure. The phrase internalising the externality is worth using.
- Watch out
- Explaining that the tax discourages consumption is only half the answer. Say why that is an advantage. Many candidates gave no application at all, though the question requires the data.
Case study: Heating Up
Using a subsidy diagram, evaluate the extent to which government subsidies may lead to government failure.
Examiner insight
- What to cover
- Draw the subsidy, then define government failure properly as intervention that leads to a net welfare loss or a greater misallocation of resources. Test the subsidy against that: information failure in setting the right amount, unintended consequences, and the cost.
- Watch out
- Saying the subsidy has an opportunity cost is not government failure by itself. You must explain how that opportunity cost could outweigh the net social benefit of the subsidy.
Using an example from the chart, describe what is meant by a direct tax.
Assess the advantages and disadvantages of using indirect taxes.
Examiner insight
- What to cover
- Give advantages and disadvantages that are specific to indirect taxes: they can cut consumption of demerit goods and correct externalities, they are harder to avoid and cheaper to collect, they are built into the price so they are less visible. Against: they are regressive, they are inflationary, and revenue is uncertain when demand is elastic.
- Watch out
- Points that would be true of any tax, such as raising revenue for public services, are treated as limited. Use technical language and keep indirect and direct taxes clearly apart. Many candidates could not reach half marks.
Calculate the expected percentage change in the quantity of electricity demanded between 2021 and 2022.
Discuss the impacts of the Energy Price Guarantee.
Examiner insight
- What to cover
- The Energy Price Guarantee is a maximum price with suppliers compensated. Set out the impacts on households, on suppliers, on the government budget and on inflation, and use the data on regional prices.
- Watch out
- Check your points are logical. Examiners rejected claims that households would move regions for cheaper energy, or that suppliers would withdraw from areas with a lower cap, since the data says suppliers were fully compensated.
Case study: SIN CITY
(i) Identify one ad valorem tax from the data and draw a diagram to illustrate its effect on the market supply curve. (ii) Using a mathematical example, discuss whether indirect taxes are always regressive.
Examiner insight
- What to cover
- Part (i): identify an ad valorem tax from the data, such as VAT or alcohol duty, and draw it. Part (ii): define regressive precisely as taking a higher proportion of income from lower earners, then show it with a worked example of the same tax paid on two different incomes.
- Watch out
- In the mathematical example, isolate the tax itself as a percentage of income, not the whole purchase. Many candidates made this slip.
Case study: SIN CITY
Consider whether the imposition of an indirect tax on sugary soft drinks raises revenue for the government and reduces the amount of sugar that people consume in Philadelphia. Use an appropriate diagram in your answer.
Examiner insight
- What to cover
- Answer both halves: the revenue raised and the fall in sugar consumption. Show the tax shifting supply left, price rising and quantity falling, and mark the government revenue rectangle.
- Watch out
- Most candidates did not label government revenue at all, and most of those who did confused it with consumer incidence. The question asks for a diagram, so label it fully.
Case study: PLASTIC BAGS: TO CHARGE OR NOT TO CHARGE?
Using the data, discuss the extent to which the 5p charge on plastic bags should be considered an example of government failure.
Examiner insight
- What to cover
- Define government failure as intervention that causes a greater misallocation of resources. Use the data to test the 5p charge against it: unintended consequences, administrative cost, regressive effects on low income shoppers, substitution into thicker bags.
- Watch out
- Most candidates handled government failure and the data well. What held answers back from full marks was the evaluation, so leave time for it.
Case study: PLASTIC BAGS: TO CHARGE OR NOT TO CHARGE?
To what extent are tradeable pollution permits effective at reducing the environmental damage within a country?
Examiner insight
- What to cover
- No application required, so this is a straight advantages against disadvantages question. Explain how a permit scheme caps total emissions, puts a price on pollution and gives firms an incentive to abate where it is cheapest, with trading between firms.
- Watch out
- This is a revision gap, not a timing gap. Know the mechanism of a permit market, not just the name.
(i) Calculate the % of the teacher's gross annual income paid in income tax. (ii) How much would a person earning £10 000 per year pay in income tax?
Using the data, outline why income tax is generally considered to be progressive.
Discuss the likely effects of increasing the rate of VAT in New Jersey on the level of employment in the state.
Examiner insight
- What to cover
- Treat a VAT rise as a cost and price effect. Higher prices cut real incomes and spending, firms face lower sales and higher costs, so derived demand for labour in New Jersey falls. Keep every step tied to employment in the state.
- Watch out
- Two errors cost marks: drifting onto other macro objectives instead of employment, and shifting AD left rather than shifting AS upward.
With reference to the data, and using relevant economic theory, evaluate the view expressed by John Redwood.
Examiner insight
- What to cover
- Use the data table in both directions, comparing tax rates by income level and across countries, then apply theory: Laffer curve effects on revenue and incentives, and the progressivity of the system.
- Watch out
- Full marks were not available without using the data table. Answers that gave pure theory with no reference to the figures were capped.
Short answer questions on government intervention in markets
Discuss the view that economic development in China is more likely to be achieved through free market forces rather than government intervention.
Examiner insight
- What to cover
- Set market forces against intervention for Chinese development. Market forces: migration evening out wages, private investment, competition and efficiency. Intervention: infrastructure, the hukou system, state direction of industry, poverty programmes.
- Watch out
- The theory was generally good. Marks were lost for not making the answer about China. Pull in the Chinese material, including the hukou system and the migration point from the previous question.
Explain, with the use of a diagram, what the effect of imposing an indirect tax would be on the price, quantity sold and tax revenue gained from the sales of luxury yachts.
Multiple choice questions
- AS Unit 1, June 2024, Q11
Healthy eating campaigners said that cutting the rate of VAT on junk food would lead to a less healthy population, with more people suffering from obesity and tooth decay. If true, this may be an example of:
- AS Unit 1, June 2019, Q15
The graph below shows the main sources of UK Government tax revenues in 2015-16. Income tax - £170 billion Council tax - 28 billion Business rates - £28 billion X - £115 billion VAT - £133 billion Corporation tax - £42 billion Identify the…
- AS Unit 1, June 2018, Q14
The diagram below shows the market for a particular product. The Government has recently imposed an indirect ad valorem tax onto the product. How much tax revenue will the Government collect from this tax? S2 P S1 £9 £5 £3 D
Question text is quoted from the question papers, © WJEC CBAC Ltd, for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.