Gce Model Questions Vol1 2020 Economics Question 2

Practice essay / theory question 2 from the 2020 Gce Model Questions Vol1 Economics examination. This question covers Demand and Supply .

Gce Model Questions Vol1 2020 Economics Essay / Theory
Topic: Demand and Supply
Question 2 GCE_MODEL_QUESTIONS_VOL1 • 2020 • ECONOMICS • essay

The government of Nigeria is considering imposing a tax of ₦200 per litre on petrol.

Question Parts

( a )
Explain, using demand and supply analysis, how the tax is expected to affect the equilibrium price and quantity of petrol. Include a brief description of the shifts in the curves.
( b )
Assuming the initial equilibrium price was ₦150 per litre and the equilibrium quantity was 1,000,000 litres per month, and that the price elasticity of demand for petrol is –0.4 while the price elasticity of supply is 0.6, estimate the approximate incidence of the tax on consumers and producers (i.e., how the ₦200 tax is shared). Show the steps of your reasoning.
( c )
Discuss two possible unintended consequences of the tax on the broader economy, linking them to concepts such as substitution effect, black market, or fiscal revenue.

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About This Question

This is Gce Model Questions Vol1 2020 Economics Question 2. It is one of the essay questions from the 2020 Gce Model Questions Vol1 Economics examination.

The question covers Demand and Supply .

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