QUESTION 55 (5 marks)
Two households buy identical tax-inclusive bundles containing $600 of indirect tax each year. Their disposable incomes are $30 000 and $120 000. Calculate the tax share of each income. Evaluate one equity concern and one possible policy response.
Practice marking scheme
Answer
Tax shares are 2% and 0.5%; a targeted transfer could offset the disproportionate burden.
Working
600/30 000 = 2%; 600/120 000 = 0.5%. In this example the tax uses four times the income share for the poorer household. A targeted transfer can preserve the tax’s revenue and price signal while compensating vulnerable households, but requires reliable eligibility and funding. Actual incidence also depends on different consumption patterns.
Marking criteria
- Calculates the two shares. [1 mark]
- Explains a distributional concern using the data. [2 marks]
- Evaluates a response and a limitation. [2 marks]
Practice question aligned to the current QCAA syllabus; review the worked solution and marking criteria.
View the QCAA syllabusCompare your working with the guide above.