H1 / H2 Model Economics Essay (SAMPLE MICROECONOMICS QUESTION): In many countries, petrol is among the most heavily taxed goods.

Motorists have often exclaimed, "If the petrol tax were any higher, I'd take the bus!" (a) Explain why petrol is heavily taxed. [10] (b) Examine the relevance of price elasticity of demand and income elasticity of demand for raising tax on petrol. [15]

This is a sample model essay question on Micro economics, suitable for both H1 and H2 students. (Click here for a good sample Macro economics 'A' Level essay.) Suggested Answers for Part A: The measure taken here is a government action. Thus, part A simply asks for rationale of a tax. As you can remember, the government's microeconomics objective are to achieve i) social efficiency, due to either presence of externalities or market imperfections and ii) equity or fairness. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Basic CONTENT answers: Define tax. Explain how a tax works. Market failure. Divergence between private and social costs. Key ANALYSIS answers: Common Answers: 1) To reduce congestion. Raise the user cost of driving by taxing petrol. 2) To reduce air pollution Not-so-common answers: To raise tax revenue. 3 reasons: 1) To raise tax revenue, so as to meet expenses in areas such as provision of public goods, merit goods, etc. 2) Provide subsidies to private firms to engage in R&D efforts to reduce pollution. 3) Raise revenue to reach out to lower-income and needy parts of the economy, fund social programmes to promote equity. As you can see, when a question involves the government, thinking of the micro economic objectives will guarantee you to keep your answer as relevant as possible. Q: How many rationales to give. Given 10m, on average 3 will do. Suggested Answers for Part B: Note that in this part, evaluation skills is required, and is worth 4m. So 11 left for the analysis. On average, 5m for PED and YED EACH. Probably only 1-2m for PED content and 3-4m for PED analysis, so keep the basic definition and explanation of concepts short! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Basic CONTENT answers:

Define and interpret PED and also YED. Key ANALYSIS answers: Justify whether the demand for petrol is price elastic, using the determinants of PED. Explain the relation between price changes and PED <1 situation. Establish the relationship between higher petrol tax to the objectives as explained in part a, USING PED as the only reason for the link! And other reason is NOT allowed. For example: As demand is relatively price-inelastic, governments attempt to discourage driving in attempt to deal with negative externalities such as pollution and congestion will experience limited success. Explain also the increase in higher tax revenue collected. Further analyse by adding in other policies and measures in place to achieve the desired objectives. As for YED, somewhat less useful. Easily YED > 1. YED suggests that achieving the objectives is difficult, unless the economy experiences a recession. Middle and lower group will respond by more public transport trips. (So upon realising, you will have to re-allocate the marks to be about 8m for PED and 3m for YED. Overall, in order to achieve some success with the micro objectives, have to curb their increase in purchasing power and incomes in good times.

Common Mistakes Students make in Economics Essay Writing

Many students do study the lecture notes, and attempt to do their essay writing. However, this approach leads itself into several common mistakes, namely: 1) Write EXCESSIVELY on the basic content answers. This happens because students very often have no idea what to write, so they regurgitate largely from the recall of the lecture notes. 2) Students did not realise that the moment they recall the microeconomic objective of the government, they will never be guilty of going out of point and suffer from irrelevance anymore. (Note that they are exceptions to this rule of thumb). 3) Despite numerous written attempts, students still usually do not know how to interpret essay questions, and thus how to write what the question is looking for.