IB Economics HL Unit 2 Microeconomics Questions
Build your IB Economics HL Microeconomics foundation by evaluating demand, supply, elasticity and intervention with diagrams and evidence.
- Syllabus
- First assessment 2022
- Course
- Economics HL
- Level
- HL
Exam points
- Explain demand, supply, elasticity and market equilibrium using diagrams, calculations and ceteris-paribus reasoning.
- Analyse consumer and producer behaviour, market power and the causes of market failure including public goods, asymmetric information and inequality.
- Evaluate government intervention and market outcomes using efficiency, equity, stakeholder, behavioural and real-world trade-offs.
Covered syllabus points
2.1 Demand2.2 Supply2.3 Competitive market equilibrium2.4 Critique of the maximizing behaviour of consumers and producers2.5 Elasticities of demand2.6 Elasticity of supply2.7 Role of government in microeconomics2.8 Market failure - externalities and common pool or common access resources2.9 Market failure - public goods2.10 Market failure - asymmetric information2.11 Market failure - market power2.12 The market's inability to achieve equity
Question 1
[Maximum number: 10]
Explain the differences between economies of scale and the law of diminishing returns.
Candidates may include:
- a definition of economies of scale
- a definition of the law of diminishing returns
- a distinction between the short run and the long run
- a distinction between fixed and variable factors of production
- an explanation of economies of scale as a long-run phenomenon
- an explanation of the law of diminishing returns as a short-run phenomenon
- use of diagrams to illustrate economies of scale
- use of diagrams to illustrate the law of diminishing returns that may be product curves and/or short run cost curves.
Candidates who incorrectly label diagrams cannot be rewarded with full marks.
Examiners should be aware that candidates may take a different approach which if appropriate, should be rewarded.
Assessment Criteria
Level
Marks
0 Completely inappropriate answer.
Little understanding of the specific demands of the question.
Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors.
Some understanding of the specific demands of the question.
Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors.
Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included.
Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used.
Question 2
[Maximum number: 10]
Using the concept of market failure, explain why a government may try to decrease the use of motor vehicles in city centres.
Candidates may include:
- a definition of market failure
- a definition of negative externalities, consumption or production
- an explanation that this is a case of a negative consumption externality (private use of vehicles) or production externality (commercial use of vehicles) leading to over-use of motor-vehicles
- MSB less than MPB for consumption externality or MSC greater than MPC for production externality
- an explanation of the external costs, e.g. effects on third parties due to congestion or pollution, increase in business costs
- use of a diagram to illustrate the MSB curve lying below the MPB curve or the MPC curve lying below the MSC curve
- an explanation of the impact of negative externalities in terms of inefficient use of scarce resources/over-allocation of resources.
References to methods of reducing use of motor vehicles may be rewarded.
Candidates may be awarded full marks through either the MSB/MPB approach or the MSC/MPC approach.
Candidates who incorrectly label diagrams cannot be rewarded with full marks.
Examiners should be aware that candidates may take a different approach which if appropriate, should be rewarded.
Assessment Criteria
Level Marks
0
Completely inappropriate answer.
1
Little understanding of the specific demands of the question. Very little recognition of relevant economic theory.
Relevant terms not defined.
Significant errors.
1-3
2
Some understanding of the specific demands of the question. Some recognition of relevant economic theory.
Some relevant terms defined.
Some errors.
4-6
3
Understanding of the specific demands of the question.
Relevant economic theory explained and developed.
Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included.
7-8
4
Clear understanding of the specific demands of the question.
Relevant economic theory clearly explained and developed.
Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used.
9-10
Question 3
[Maximum number: 10]
Using a diagram, explain how a firm in perfect competition can be making losses whilst still producing at the level of output where marginal costs equal marginal revenue.
Candidates may include:
- a definition of perfect competition
- a definition of losses
- a definition of marginal cost, marginal revenue
- an explanation that profit maximization/loss minimization occurs at the level of output where MC equals MR
- an explanation that the firm makes a loss where ATC exceeds AR (P) at the profit maximizing/loss minimizing level of output
- use of a diagram of perfect competition to illustrate short-run losses at the level of output where MC equals MR
- reference to the condition that AR must be greater than or equal to AVC at the profit maximizing/loss minimizing level of output if the firm is to produce in the short run.
Candidates who incorrectly label diagrams cannot be rewarded with full marks.
Examiners should be aware that candidates may take a different approach which if appropriate, should be rewarded.
Assessment Criteria
Level 0
Marks 0
Completely inappropriate answer.
1
Little understanding of the specific demands of the question. Very little recognition of relevant economic theory. Relevant terms not defined. Significant errors.
1-3
2
Some understanding of the specific demands of the question. Some recognition of relevant economic theory. Some relevant terms defined. Some errors.
4-6
3
Understanding of the specific demands of the question. Relevant economic theory explained and developed. Relevant economic terms defined. Few errors. Where appropriate, diagrams included.
7-8
4
Clear understanding of the specific demands of the question. Relevant economic theory clearly explained and developed. Relevant economic terms clearly defined. No major errors. Where appropriate, diagrams included and explained. Where appropriate, examples used.
9-10
Question 4
[Maximum number: 10]
Using at least one diagram, explain how firms operating in monopolistic competition will make normal profit (zero economic profit) in the long run.
Candidates may include:
- a definition of long run
- a definition of normal profit (zero economic profit)
- an explanation of the characteristics of firms in monopolistic competition
- an explanation of the short run profit maximizing output of a firm operating in monopolistic competition, with the firm making either abnormal profit or loss
- an explanation of how free entry in the long run, will result in a leftward shift in the demand curve facing the monopolistically competitive firm when existing firms are making abnormal profit in the short run
- an explanation of how free exit in the long run, will result in a rightward shift in the demand curve facing the monopolistically competitive firm when existing firms are making losses in the short run
- an explanation of how free entry/exit would lead firms in monopolistic competition to make normal profit in the long run
- use of a diagram showing the abnormal profit/loss of monopolistically competitive firms in the short run
- use of a diagram showing the long run equilibrium where the firm earns normal profit
- examples of monopolistically competitive firms.
Candidates need not examine both abnormal profit and loss scenarios;
an explanation of one or the other is enough for full marks.
Examiners should be aware that candidates may take a different approach which if appropriate, should be rewarded.
Assessment Criteria
0 Completely inappropriate answer. ..... 0
1 Little understanding of the specific demands of the question. Very little recognition of relevant economic theory. Relevant terms not defined.
Significant errors. ..... 1-3
2 Some understanding of the specific demands of the question. Some recognition of relevant economic theory. Some relevant terms defined.
Some errors. ..... 4-6
3 Understanding of the specific demands of the question.
Relevant economic theory explained and developed. Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included. ..... 7-8
4 Clear understanding of the specific demands of the question. Relevant economic theory clearly explained and developed. Relevant economic terms clearly defined. No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used. ..... 9-10
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