1. Examine the causes of income and wealth inequality in the UK or any country
of your choice. (20 Marks)
Mark Scheme
Causes could include:
• Education
• Skills and training
• Experience/age
• Type of employment
• Ownership of assets
• Inheritance
• Pension rights
Evaluation:
• Prioritisation of factors
• Significance of each factor
• Level and quality of education e.g. degree, subject, class
• Pension rights e.g. final salary schemes
• Conclusion
In the 2009 budget the UK government announced that a new 50% rate of
income tax would be introduced in 2010. This creates three marginal tax
rates of 20%, 40% and 50%, instead of two. Evaluate the likely economic
effects of this change in the tax structure. (30 Marks)
Mark Scheme
Effects include:
• Disincentive to work: could be analysed using income and substitution effects
• Tax revenues- use of Laffer curve analysis
• Tax evasion (illegal)
• Tax avoidance (legal) e.g. working fewer hours taking income in form of share option
(CGT only 18%)
• Tax exiles – move to Switzerland
• Distribution of income – more even: analysis of progressive taxation
• Impact on AD and associated analysis

2. Evaluation could include:
• Extent of disincentive effects of 50% tax rate
• Ease of avoiding 50% tax rate
• Number of people affected by new tax rate
• Extent of tax evasion
• Significance of impact on different sectors of the economy e.g. on financial services
• Impact on income distribution might be offset be other factors e.g. increasing
unemployment
Examiners Report
This was the least popular of the three essay questions and responses were generally weaker
than on the other essays.
Better answers to part (a) were able to examine some valid causes of inequality such as
inheritance, education, pension rights and ownership of assets. However, others struggled to
develop more than one point or wrote generalised answers relating to wages.
Answers to part (b) were more convincing with some discussion of the possible impact on tax
revenues, disincentives and the effect on aggregate demand. However, evaluation was often
surprisingly weak, given the topical nature of this question.