Question:

3 Digital money, such as cryptocurrencies, is increasingly being used. Digital money transactions
take place on electronic devices such as computers and smartphones. However, there can be
market failure due to external costs arising from high energy usage of non‐renewable sources.
One way of reducing external costs is to tax the product.
(a) Identify two types of tax. [2]
(b) Explain two functions of money. [4]
(c) Analyse the consequences of market failure. [6]
(d) Discuss whether or not a tax on a product can reduce external costs. [8]

Sample Answers: