IB Economics HL Unit 2 Microeconomics Questions

249-4 P=150+14 P
99=18 P

Any valid working is sufficient for [1].
$P=\$5.50$, Q=227

An answer of 5.50, 227 (without working) is sufficient for [1].

$\mathrm{Qd}=249-4 \times 8.50=215$
Qs $=150+14 \times 8.50=269$

Any valid working is sufficient for [1].
There will be excess supply or a surplus of 54 .

An answer of 54 (without working) is sufficient for [1].

249-4 P=150+14 P+18
81=18 P

Any valid working is sufficient for [1].
$P=\$4.50$

An answer of 4.50 (without working) is sufficient for [1].

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

Vague response.

The idea that some things might change or to understand the impact of change in one independent variable (price) at a time.

2

Accurate response.

An outline that a change in any of the non-price determinants, such as income and tastes and preferences, may distort the effect of the change in price, meaning that the impact of the change in price alone cannot be determined.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

The written response is limited.

The idea that demand for widgets will decrease or demand shifts to the left.

2

The written response is accurate.

For explaining that demand for widgets will decrease and hence the "a term" intercept or horizontal intercept or Q-intercept will decrease.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

Vague understanding.

The idea that the change in demand is equal to the change in price or there is no change in revenue when the price changes or that it shows when revenue is at its maximum.

2

Clear understanding.

A change in the price of a product results in a proportionate (equal percentage) change in the quantity demanded.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

The written response is limited.

1-2

For providing one determinant without explanation, award a maximum of [1].

For providing two determinants without explanation or for providing one condition with explanation, award a maximum of [2].

2

The written response is accurate.

3-4

For providing one determinant without explanation and one determinant with explanation, award a maximum of [3]. For providing two determinants with explanation, award a maximum of [4].

Accurate explanations may include:

- degree of necessity - if a good is a necessity, then demand will be price inelastic as consumers will attempt to avoid reducing consumption, while any reduction is likely to be proportionately smaller than the change in price

- availability of close substitutes - if close substitutes are available, demand will be price elastic as an increase in the price of the product is likely to lead to consumers switching to alternatives, causing the quantity demanded (of the good) to decrease significantly

- proportion of income spent on the good - if the price represents a small proportion of income, demand will be price inelastic as a change in price will have little impact on the ability of the consumer to purchase the product

- time - consumers are more able to react to changes in price if they have more time, so demand is likely to be more price elastic in a longer time period

- any other reasonable response (provided it does not repeat the idea i.e. if luxuries and necessities are both explained, treat this as one point. Same rule applies for number of substitutes and availability of close substitutes).

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

Vague response.

The idea that an increase in the price of one will lead to a decrease in supply of the other.

2

Accurate response.

An increase in the price of one good, eg wheat, will cause a decrease in supply of the other eg barley as the two products "compete" for resources needed to grow them.

Price elasticity of supply =0

For a vertical supply curve, labelled, at 80000 tickets.

For an accurate, labelled MR curve.

zation.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

The written response is limited.

1-2

For explaining that profits will be maximised where MR=MC (or that TR - TC is maximised) [1].

and that MC=0 in this case OR for explaining that since there are no variable costs (or only fixed costs), maximum profit will occur at the same quantity as maximum revenue, which is when MR = 0 [1].

2

The written response is accurate.

3-4

And for explaining that profits will therefore be maximised when Q is 60000 [1].

At a price of $800 [1].

Slope =4.5 OR+4.5( or 1 / 4.5 or 2 / 9)

An answer of 4.5 or +4.5 (or 1/4.5 or 2/9) without any working is sufficient for [1].

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

Vague outline.

The idea that it becomes more profitable to supply / because of the law of supply / to earn more revenue / because the coefficient is positive / because producers are more willing to supply.

2

Accurate outline.

An outline that as it becomes more profitable to supply, including one of the following:

- At a higher price, the profit margin is greater, so there is an incentive to produce and offer more units.

OR

- As price increases, profit will be maximized at a higher level of output given an upward-sloping MC curve. OR

- Since marginal costs rise, a firm will be willing to offer more units per period only at a higher price.

NB Responses which outline only that producers are "more able to afford" to produce more should not be rewarded.

Award [1] for an accurate, labelled supply curve.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

Vague outline.

- an increase in costs of production will reduce profitability.

OR

- an increase in costs of production may require an increase in price.

2

Accurate outline.

For outlining that:

- an increase in costs of production will reduce profitability, causing producers to be less willing to supply.

OR

- an increase in costs of production will increase the price at which producers will be willing to supply the same quantity.

NB Responses which make reference to producers being "less able to afford" resources should not be rewarded.

Reference to the need to cut costs may be rewarded at level 1, but if the candidate refers to producers being unable to afford to supply, this should not be rewarded.

An accurate numerical example, referring explicitly to data in the graph, should be rewarded.

$(0.5 \times 20 \times 60000)-(0.5 \times 20 \times 90000)$
Any valid working is sufficient for [1].
$=-\$ 300000$ (or a decrease of $300 000)
An answer of - $300 000 or - 300000 without any working is sufficient for [1].

Define the term price elasticity of supply.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

Vague definition.

The idea that price elasticity of supply relates to changes in quantity following a change in price.

OR

The proportional/percentage change in quantity supplied in response to (divided by) a (proportional/percentage) change in price.

OR

Percentage change in quantity supplied/percentage change in price.

2

Accurate definition.

An explanation that price elasticity of supply is the responsiveness of supply (or, of quantity supplied) to a change in price.

The time taken to produce goods is an important determinant of the price elasticity of supply.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

The written response is limited.

1-2

Any one factor expressed in a vague manner [1]. Any two factors expressed in a vague manner OR one factor explained clearly [2].

2

The written response is accurate.

3-4

Any one factor explained clearly AND one factor expressed in a vague manner [3].

Any two factors explained clearly [4].

Factors may include:
- whether the firm has excess (or unused, or spare) capacity available: if it does, then increasing output will be easier so supply will be more price elastic
- possibility of storage: the greater the ability to store stocks, the more price elastic supply will be as firms can draw from stocks to increase the quantity supplied
- mobility of factors of production: the easier it is for a producer to switch resources from one use to another, the easier it will be to increase the quantity supplied in response to an increase in the price of the product, so supply will be more elastic (the ease with which technology can be implemented/applied could be an example of this)
- the rate at which costs rise as output increases - the faster/higher the rate, the lower the PES (NB "costs of production" should not be rewarded)
- the nature of the product eg for agricultural products, the time lag between planting and harvest is relatively long, so supply would be relatively price inelastic in the short term.

Any other reasonable response should be rewarded.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

The written response is limited.

1-2

For stating that supply is perfectly inelastic [1] and that producers will bear the full burden (incidence) of the tax [1].

OR
$$\frac{\% \text { of tax incidence on Consumers }}{\% \text { of tax incidence on producers }}=\frac{\text { PES }}{\text { PED }}[1]$$

So, given PED, the more price inelastic supply is, the smaller the incidence on consumers and the greater on producers [1].

2

The written response is accurate.

3-4

For stating that supply is perfectly inelastic [1] and that producers will bear the full burden (incidence) of the tax [1] AND for an explanation that equilibrium price [1] and quantity will not change (so that consumers are not affected but producers bear the full burden/incidence) [1]. OR
$$\frac{\% \text { of tax incidence on Consumers }}{\% \text { of tax incidence on producers }}=\frac{\text { PES }}{\text { PED }}[\mathbf{1}] .$$

So, given PED, the more price inelastic supply is, the smaller the incidence on consumers and the greater on producers [1]. If PES is zero as it is here [1], then 100\% of tax incidence (the full $10.00) will be paid by producers [1] (and 0\% by consumers).

Award [1] for an accurate, labelled marginal revenue (MR) curve.

$150 \times 30000$

Any valid working is sufficient for [1].
= $4500000

An answer of $4 500 000, 4500 000, $4.5 million or 4.5 million without any working is sufficient for [1].

Marking guidance:

OFR applies from part (i), depending on where the MR curve cuts the x axis.

Marking guidance:

Award [1] if the candidate identifies that profit will be maximized where:
MC=MR
OR
MC=0
OR
TR - TC is maximized
ie at 30000 tickets and a price of $\$ 150$.
$\mathrm{TR}=30000 \times \$ 150=\$ 4.5$ million
TC = $3 million

Profit = 4.5 million -3 million
Any valid working is sufficient for [1].
= $1.5 million
An answer of $1.5 million or 1.5 million or 1500000 without any working is sufficient for [1].

OFR applies, provided either TR or TC is calculated correctly.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

The written response is limited.

1-2

For a market diagram showing a negative externality of consumption, with equilibrium output higher than the socially optimum level of consumption (or an accurate welfare loss) OR an explanation that traffic congestion represents a negative externality arising from the use of vehicles.

2

The written response is accurate.

3-4

For a market diagram showing a negative externality of consumption, with equilibrium output higher than the socially optimum level of consumption (or an accurate welfare loss) AND an explanation that traffic congestion represents a negative externality arising from the use of vehicles.

Candidates who label the diagram incorrectly can be awarded a maximum of [3].

The y axis may be labelled price or P and/or costs and/or benefits, and the x axis labelled quantity or Q. A title is not necessary. S and D are not required to be part of the labelling.

Level

0

The work does not meet a standard described by the descriptors below.

1

The response is limited

For an upward-sloping supply curve below the original.

2

The response is accurate

For an accurate labelled supply curve (parallel and 50 rupees below the S+t curve).

$50 \times 500$ (million)
Any valid working should be rewarded with [1]
= (RPs) 25 billion (or 25000 million or 25000000 000)
NB as rupees is stated in the question, it is not necessary to include it in the response.

An answer of 25 billion (or 25000 million or 25000000 000) without workings is sufficient for [1]

Marking guidance:

OFR applies provided the S curve is drawn below the S+t curve (ie the vertical distance between the curves may be incorrect).

NB the symbol ₹ may be used for the Indian rupee.
For full marks to be awarded the response must provide valid working and include correct units.

$40 \times 0.5(500+600)$ (million)
Any valid working should be rewarded with [1]
= RPs 22 billion (or 22000 million or 22000000 000)
An answer of RPs 22 billion (or 22000 million or 22000000 000) without workings is sufficient for [1]

Marking guidance:

OFR applies provided the S curve is drawn below the S+t curve.
NB If a student finds the y intercept (of the demand curve, which is 270) and calculates the difference between two triangles, the working should be as follows:
$0.5(240 \times 600)-0.5(200 \times 500)=72000-50000$
For full marks to be awarded the response must provide valid working and include correct units.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

The written response is limited.

For an inaccurate calculation of PES with some valid working

OR for only stating that PES < 1 (or for providing a number less than 1)

OR for stating that the S curve is steep and so inelastic.

2

The written response is accurate.

For an accurate calculation of PES using two points on the curve showing PES<1 OR an explanation that any straight line supply curve which intersects the horizontal axis must show price inelastic supply.

NB There are several calculations which could legitimately be used, depending on the initial price and quantity selected. One example is that, at the original equilibrium, PES =(1 / 6) /(10 / 30)=0.5

Another along the length of the S curve with P falling to P=0 is: PES =(600 / 900) /(60 / 60)=2 / 3=0.67

Examiners will need to check carefully the accuracy of such calculations.

$3 \times 500$ (million)
Any valid working should be rewarded with [1].
= RPs 1.5 billion (or 1500 million or 1500000000 )
An answer of RPs 1.5 billion (or 1500 million or 1500000 000) without workings is sufficient for [1].

NB For full marks to be awarded the response must provide valid working and include correct units.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

Vague definition

For the idea that consumers make sensible decisions.

2

Accurate definition

For a clear understanding that consumers (are assumed to) make decisions (at the margin) which maximize their utility.

OR

For an answer that explains that rational consumer choice requires that preferences are complete (consumers able to rank all bundles/baskets of goods) / they are transitive (consistent) / more is preferred to less.

-use of cars in New Delhi.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

The written response is limited.

1-2

For an explanation of one limitation of rational consumer choice (eg consumers may often make choices without the time or ability to gather all the relevant information (bounded rationality))

OR an explanation of how one limitation of rational consumer choice might lead to the over-consumption of cars in New Delhi (eg drivers in New Delhi are not able to evaluate all the alternatives to driving, such as the use of "ride share services, and hence make "irrational" decisions).

2

The written response is accurate.

3-4

For an explanation of one limitation of rational consumer choice (eg consumers may often make choices without the time or ability to gather all the relevant information (bounded rationality))

AND an explanation of how one limitation of rational consumer choice might lead to the over-consumption of cars in New Delhi (eg drivers in New Delhi are not able to evaluate all the alternatives to driving, such as the use of "ride share services", and hence make "irrational" decisions).

NB A range of valid responses is available for this question. Candidates should be fully rewarded if they provide a well-explained answer which applies other limitations of the assumptions of rational consumer choice such as:
- biases: availability, anchoring, social conformity, inertia
- bounded self-control
- any valid response.

Possible policies may include (but are not restricted to):
- Indirect taxation on vehicles
- Increased indirect taxation on petrol
- Investment in public transport
- Investment in transport infrastructure
- Subsidized ride-sharing services
- Rationing the use of motor vehicles (eg even/odd number plate days)
- Behavioural economic policies, such as, choice architecture eg Nudge theory
- Legislation
- A congestion charge
- Any other valid policy.

NB If more than one policy is recommended, only the best policy should be rewarded, unless the policies are shown to be complementary or if they are compared/contrasted with the student's one chosen policy.

Assessment Criteria

Recommend-present an advisable course of action with appropriate supporting evidence/reason in relation to a given situation, problem or issue.

Marks

Level descriptor

0

- The work does not reach a standard described by the descriptors below.

1-2

- The response identifies a policy.

- The response uses no economic theory to support the recommendation.

- Economic terms are stated but are not relevant.

- The response contains no use of text/data to support the recommendation.

- The response contains no evidence of synthesis or evaluation.

3-4

- The response identifies an appropriate policy.

- The response uses limited economic theory to support the recommendation in a superficial manner.

- Some relevant economic terms are included.

- The response contains no use of relevant text/data to support the recommendation.

- The response contains evidence of superficial synthesis or evaluation.

5-6

- The response identifies and explains an appropriate policy.

- The response uses relevant economic theory to partially support the recommendation.

- Some relevant economic terms are used appropriately.

- The response includes some relevant information from the text/data to support the recommendation.

- The response contains evidence of appropriate synthesis or evaluation but lacks balance.

7-8

- The response identifies and fully explains an appropriate policy.

- The response uses relevant economic theory to support the recommendation.

- Relevant economic terms are used mostly appropriately.

- The use of information from the text/data is generally appropriate, relevant and applied correctly to support the recommendation.

- The response contains evidence of appropriate synthesis or evaluation that is mostly balanced.

9-10

- The response identifies and fully explains an appropriate policy.

- The response uses relevant economic theory effectively to support the recommendation.

- Relevant economic terms are used appropriately throughout the response.

- The use of information from the text/data is appropriate, relevant and supports the analysis/evaluation effectively.

- The response contains evidence of effective and balanced synthesis or evaluation.