Paper 2 Practice: Microeconomic Objectives and Policies

Original topic practice

The contexts are fictional. This two-question set is not a complete Paper 2.

Question 1: Freight traffic and neighbourhood noise

Delivery trucks create benefits for buyers and sellers but impose noise and congestion costs on residents near distribution centres.

(a) Explain why an unregulated market for truck deliveries may produce an allocatively inefficient outcome. [10]

(b) Discuss whether a tax on each delivery is the best policy for reducing the resulting welfare loss. [15]

Question 2: Low pay and inequality

The economy of Estara has rising median income but a widening disposable-income gap. Its government is considering a higher minimum wage, more progressive taxation and expanded education support.

(a) Explain how a binding minimum wage may affect workers, firms and the labour market. [10]

(b) Discuss which policy, or combination of policies, is most likely to reduce income inequality without causing excessive efficiency costs. [15]

Outlines: Paper 2 Microeconomic Policy — Outlines.