Microeconomics · Hard · 30 marks
EO past paper: 2025 International Final, Part A
Section 1 (30 points). Remember to fully label your graphs. All three questions are set in the country of Asabia.
Table 1: Joe's indifference combinations
Sugary drinks (250ml bottles) Fresh fruit juices (250ml bottles) A 1 6 B 2 3 C 3 2 D 4 1 \begin{array}{lcc} & \text{Sugary drinks (250ml bottles)} & \text{Fresh fruit juices (250ml bottles)} \\ \hline \text{A} & 1 & 6 \\ \text{B} & 2 & 3 \\ \text{C} & 3 & 2 \\ \text{D} & 4 & 1 \end{array} A B C D Sugary drinks (250ml bottles) 1 2 3 4 Fresh fruit juices (250ml bottles) 6 3 2 1
(a) Joe, a resident of the country of Asabia, has the indifference combinations in regard to sugary drinks and fresh fruit juices noted in Table 1. Using the data in Table 1 create an indifference curve for Joe showing the combinations of sugary drinks and fresh fruit juices that lead to equal satisfaction. Clearly indicate the four indifference combinations A, B, C, D in your graph. (Type your answer: describe the diagram in words, naming the axes, curves, shifts and areas.) [10] marks (b) The country of Asabia is facing increased percentages of obesity and diabetes. Due to this, they have decided to place a per-unit tax on the producers of sugary drinks. The demand for sugary drinks has been found to be highly inelastic. Create a graph for the sugary drinks market which shows:
i. the effects of the per-unit tax on producers of sugary drinks
ii. indicate the change in the price paid by consumers (new equilibrium price) and the price received by producers after the tax
iii. show the change in quantity demanded
iv. show the potential tax incidence for consumers and producers taking into account as noted above that the demand for sugary drinks is inelastic. (Type your answer: describe the diagram in words, naming the axes, curves, shifts and areas.) [10] marks (c) The government of Asabia is considering using a minimum price instead of a per-unit tax to reduce the consumption of sugary drinks. Discuss the positives and negatives of the government intervening through a per-unit tax or through a minimum price in the market for sugary drinks. [10] marks
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