Economics · 2012 · November · Paper 3 · HL · Question paper

N12/3/ECONO/HP3/ENG/TZ0/XX ECONOMICS HIgHEr lE vEl PAPEr 3 Wednesday 21 November 2012 (morning) INSTRUCTIONS TO CaNdIda TES  d o not open this examination paper until instructed to do so.  a nswer three questions. Each question is worth [20 marks].  Use fully labelled diagrams and references to the text / data where appropriate.  The maximum mark for this examination paper is [60 marks]. 2 hours 8812-5107 11 pages © International Baccalaureate Organization 2012 8812510 7 N12/3/ECONO/HP3/ENG/TZ0/XX 8812-5107 – 2 – 1. Study the extract below and answer the questions that follow. Taxes on junk food and sugary drinks  Some countries are considering indirect taxes on junk food or sugary drinks to reduce their consumption and increase government tax revenues. Over-consumption of goods with a high fat or sugar content has negative externalities, because it leads to obesity, serious health problems and additional health care costs. The principle behind such taxes is the same as taxes imposed on cigarettes and alcohol. These taxes are known as “fat taxes”.  In the United Kingdom (UK), discussions focus on a tax on processed foods, snacks and sugary drinks. Another possibility would be to impose a tax on full-fat milk, butter and cheese, in order to induce consumers to switch to less fattening substitute products with a lower fat content. Foods with a high fat content are linked to heart disease and premature death.  In the United States, some states are considering imposing a tax on sugary drinks to raise funds for health care. Denmark already has a tax on these drinks and is planning a new tax on some high-fat dairy products.  However, research indicates that such taxes would have a disproportionately large effect on low income households. One reason is that low income individuals tend to consume a larger amount of foods with a high fat content because these are cheaper. This is an important reason why low income individuals tend to be less healthy than wealthier people. It has also been argued that low income individuals respond to higher food prices by eating smaller quantities of healthy food.  Food manufacturers have been angered by the