Practise IB Economics SL 2.8.1 by identifying socially optimum output from marginal benefits, costs and community surplus, using marked exam evidence.
Examine the view that the best allocation of resources, from society's point of view, occurs where the marginal private benefit equals the marginal private cost.
Answers may include:
- definition of marginal private benefit (MPB), marginal private cost (MPC), allocation of resources
- diagram to show marginal private benefit in equilibrium with marginal private cost and community surplus being maximized
- explanation of why MPB = MPC (demand = supply) represents an optimal allocation of resources
- examples of marginal private benefits and costs or externalities
- synthesis and evaluation (examine).
Examination may include: the significance of external benefits and external costs for the socially optimum resource allocation (MSB = MSC), under-provision and over-provision at the free market price, other sources of market failure such as demerit goods, asymmetric information.
NB For a response that just evaluates the view without explaining it, a maximum of Level 2 should be awarded.
Assessment Criteria
Part (b) 15 marks
Level 0 (0 marks): The work does not meet a standard described by the descriptors below.
Level 1 (1-5 marks): There is little understanding of the specific demands of the question. Relevant economic terms are not defined. There is very little knowledge of relevant economic theory. There are significant errors.
Level 2 (6-9 marks): There is some understanding of the specific demands of the question. Some relevant economic terms are defined. There is some knowledge of relevant economic theory. There are some errors.
Level 3 (10-12 marks): There is understanding of the specific demands of the question. Relevant economic terms are defined. Relevant economic theory is explained and applied. Where appropriate, diagrams are included and applied. Where appropriate, examples are used. There is an attempt at synthesis or evaluation. There are few errors.
Level 4 (13-15 marks): There is clear understanding of the specific demands of the question. Relevant economic terms are clearly defined. Relevant economic theory is clearly explained and applied. Where appropriate, diagrams are included and applied effectively. Where appropriate, examples are used effectively. There is evidence of appropriate synthesis or evaluation. There are no significant errors.