IB Economics SL Paper 1 Practice Paper (75 minutes, 25 marks, choose 1 of 3) with mark scheme

2026-10-29

Practice paper | IB DP Economics SL | Paper 1

Written to the IB Economics SL Paper 1 format: three extended-response questions, you answer one, part (a) 10 marks and part (b) 15 marks for 25 marks in 75 minutes. The three questions cover microeconomics, macroeconomics and the global economy.

IB Economics SL Paper 1 practice paper: choose 1 of 3, 75 minutes, 25 marks. Part (a) 10 marks explain, part (b) 15 marks discuss, with full mark schemes and mark bands.

Download　Question paper PDF (for students)　|　Answer PDF (mark scheme and full working)

Paper details　Level: IB DP (SL, years 1–2) | Subject: Economics SL | Time: 75 minutes | Marks: 25 (choose 1 of 3, no calculator)

Paper structure and marks

Question	Area	Parts	Marks	Content assessed
Q1	Microeconomics	1(a)+(b)	25	Elasticity and the incidence of an indirect tax; determinants and uses of PED
Q2	Macroeconomics	1(a)+(b)	25	The multiplier process, closing an output gap, and comparing policies
Q3	The global economy	1(a)+(b)	25	Comparative advantage and gains from trade; tariffs, quotas and depreciation
Offered	answer one of the three	3 × (a)+(b)	75	You answer one question for 25 marks

Questions (choose one of three)

Instruction: answer any one of the three questions, both parts.

Question 1 | Microeconomics: elasticity and government intervention (25 marks)

(a) Using a diagram, explain three determinants of price elasticity of demand (PED) and why a producer needs to know the PED of its product.

[10 marks]

Table 1: elasticity and tax data for the cigarette market (hypothetical figures)

Item	Value
Price elasticity of demand (absolute value)	0.4
Price elasticity of supply	1.6
Specific tax per pack	$6
Price and quantity before the tax	$20 / 400 thousand packs
Price and quantity in a price-cut example	$18 / 480 thousand packs

(b) ‘When a government imposes a specific tax of $6 per pack of cigarettes, the burden will necessarily fall mainly on consumers.’ Discuss.

[15 marks]

Question 2 | Macroeconomics: demand management and the multiplier (25 marks)

(a) Using the multiplier process, explain how a $40 billion increase in government infrastructure spending affects real GDP and employment.

[10 marks]

Table 2: macroeconomic data for an economy (hypothetical figures)

Item	Value
Marginal propensity to consume (MPC)	0.75
Potential GDP	$1200 bn
Current real GDP	$1080 bn
Labour force / employed	4.00 m / 3.72 m
Planned new infrastructure spending	$40 bn

(b) ‘When an economy has an output gap, fiscal policy is more effective than monetary policy in raising real GDP.’ Discuss.

[15 marks]

Question 3 | The global economy: trade and protectionism (25 marks)

(a) Using a diagram, explain comparative advantage and why two countries both gain when they specialise according to it.

[10 marks]

Table 3: output from one unit of resources in two countries (units)

Country	Cloth (units)	Wine (units)
Country A	1	2
Country B	1	0.5

(b) ‘A tariff is the most effective tool for protecting a country’s domestic industries.’ Discuss.

[15 marks]

Answers and mark scheme

Question 1 | part (a) (10 marks)

A1　Definition: PED = % change in quantity demanded / % change in price, compared in absolute value (>1 elastic, <1 inelastic).

A2　Determinant 1: number and closeness of substitutes. The more and closer the substitutes, the easier the switch, the larger the PED (e.g. one brand of soft drink).

A3　Determinant 2: proportion of income spent. The smaller the share of income (e.g. salt), the smaller the impact of a price rise, the smaller the PED.

A4　Determinant 3: time period and necessity. In the short run, or for addictive necessities (cigarettes, insulin), PED is small; over time habits and durables can change, so PED rises.

A5　Diagram: price on the vertical axis, quantity on the horizontal. A steep (inelastic) demand curve loses far less quantity than a flat (elastic) one for the same percentage price rise.

A6　PED and total revenue: when PED>1 a price cut raises revenue (here $20 x 400 = $8,000k, then $18 x 480 = $8,640k, up 8%); when PED<1 a price rise raises revenue.

A7　Here PED = (+20%) / (-10%) = -2.0: demand is elastic, so a 10% price cut brings a 20% rise in quantity.

A8　Uses for a producer: pricing and revenue management, predicting volumes after a tax or cost increase, and judging whether advertising can lower PED by building brand loyalty.

Question 1 | part (b) (15 marks)

B1　Incidence depends on the relative size of the two elasticities, not on necessity: the more inelastic side bears more of the tax.

B2　Working: consumer share = elasticity of supply / (PED + PES) = 1.6 / (0.4 + 1.6) = 80%, i.e. $4.80 per pack; producers bear $1.20.

B3　Supporting the statement: cigarettes are addictive, have few close substitutes and take a small share of income, so short-run PED is tiny (0.4 here) and consumers do bear most of it.

B4　Counter 1: in the long run PED is larger (quitting, switching to e-cigarettes or illicit purchases), so the consumer share falls and producers and retailers bear more.

B5　Counter 2: market structure and tax design. Under strong competition retailers cannot pass the tax on, so producers absorb it; specific and ad valorem taxes pass through differently.

B6　Counter 3: illicit trade and cross-border buying. At high tax rates consumers shift to untaxed cigarettes, so revenue and legal sales fall together and the burden effectively lands on government revenue.

B7　Evaluation: the figures here (PED 0.4, PES 1.6) describe the short run and assume perfect competition; the policy conclusion depends on the time horizon and on tax-avoidance channels.

B8　Judgement: the statement broadly holds in the short run where tax enforcement works (80% on consumers), but ‘necessarily’ is too strong: over time, and with active illicit trade, the burden shifts to producers and to government revenue.

Marking note　(a) 1–2 marks per valid explanatory point up to 10; the diagram carries 2 marks (axes and curve labels 1, steep vs flat contrast 1). (b) use the 15-mark bands: roughly 4–5 marks per side, 3–4 for evaluation, 1–2 for the judgement.

Question 2 | part (a) (10 marks)

A1　Definition: multiplier k = 1 / (1 − MPC) = 1 / marginal propensity to save. With MPC = 0.75 and MPS = 0.25, k = 4.

A2　Round 1: government pays contractors $40 bn; they spend 75% of it, $30.00 bn, on wages, materials and profit, which becomes income for others.

A3　Round 2: recipients of that $30.00 bn spend 75% of it, $22.50 bn, and so on; each round is smaller and the total is a geometric series.

A4　Total effect: change in GDP = change in G x k = 40 x 4 = $160 bn (beyond the first round, a further $120 bn of induced spending).

A5　Diagram: on a 45-degree (Y = AE) diagram the aggregate expenditure line shifts up by 40 and equilibrium moves from E0 to E1, with a rise in real GDP larger than the initial injection.

A6　Employment: if every $10 bn of extra real GDP creates 40,000 jobs, about 64 thousand jobs appear; unemployment falls from (400 − 372) / 400 = 7%.

A7　Qualifications: the multiplier takes time (lags) and needs spare capacity; near full employment it raises prices rather than output.

Question 2 | part (b) (15 marks)

B1　Define the gap first: potential $1200 bn − actual $1080 bn = $120 bn (10.0%), with unemployment at 7%, above the natural rate.

B2　Fiscal policy can size the gap: an injection of only $120 / 4 = $30 bn closes it through the multiplier (assuming no crowding out).

B3　For fiscal policy: it is targeted (infrastructure, transfers to low-income households with higher MPC), acts directly, and still works in a deep recession or liquidity trap.

B4　For monetary policy: rate cuts are announced at once, have short decision lags and need no legislation; when investment is interest-sensitive the effect is fast and broad.

B5　Against fiscal: recognition and implementation lags are long (this $40 bn takes years to build), it may crowd out private investment, widen the deficit and debt, and is politically driven.

B6　Against monetary: in a slump rate cuts may not revive lending (credit rationing, pessimistic firms), spending may be interest-inelastic, and the money may inflate asset prices instead of real investment.

B7　Evaluation: the two are complements rather than rivals, typically monetary first and fiscal to follow; the outcome depends on whether the gap is cyclical or structural, and on openness and the exchange-rate regime.

B8　Judgement: in a deep recession with a large multiplier (k = 4 here) and spare capacity, fiscal policy is the more reliable tool; for a mild slowdown or fine-tuning, monetary policy is better suited.

Marking note　(a) 2 marks for the formula, 3 for the round-by-round working, 2 for the total, 2 for the 45-degree diagram, 1 for the employment link. (b) 4 marks per policy side, 4 for evaluation, 2 for the judgement; data from the table must be used to earn ‘application’.

Question 3 | part (a) (10 marks)

A1　Definition: comparative advantage is the ability to produce a good at a lower opportunity cost; even if one country has an absolute advantage in both goods, specialisation by comparative advantage still pays.

A2　Opportunity costs: in A, 1 cloth costs 2 wine (1 wine = 0.5 cloth); in B, 1 cloth costs 0.5 wine (1 wine = 2.0 cloth).

A3　Therefore B has the lower opportunity cost of cloth (0.5 < 2) and A of wine (0.5 < 2.0), so B specialises in cloth and A in wine.

A4　Diagram: production possibility curves with different slopes (−2 and −0.5); after specialisation world output exceeds the self-sufficiency combination.

A5　Terms of trade: 1 cloth must trade between 0.5 and 2 units of wine for both to gain; outside that band one side refuses to trade.

A6　Source of the gain: the consumption possibility curve lies beyond the PPC, so the same resources buy more of both goods, i.e. real income rises.

A7　Real-world limits: transport costs, economies of scale, trade barriers and immobile factors mean specialisation is rarely complete.

Question 3 | part (b) (15 marks)

B1　How a tariff works: a tax on imports lifts the domestic price from the world price of $100 to $115 (+15%), cutting imports from 500 thousand to 420 thousand units and sheltering domestic producers.

B2　For: it protects jobs and infant industries, guards against dumping, and the revenue goes to the government (here 15 x 420 thousand = $6,300,000); it is more transparent than a quota and cheaper than a subsidy.

B3　Against 1: consumer surplus falls by more than producers and the government gain, creating deadweight loss; consumers pay $15 more per unit here.

B4　Against 2: protection blunts competition and efficiency, domestic firms face no pressure to cut costs, and long-run productivity and export competitiveness suffer.

B5　Against 3: retaliation and trade war. Partners can impose their own tariffs, hurting the country’s exporters (especially in a small open economy) and disrupting supply chains.

B6　Alternative tools: quotas (certain quantity, but quota rents may go abroad and are less transparent), subsidies (borne by taxpayers, less price distortion), and local-content rules or standards (non-tariff barriers, opaque and disputed).

B7　Exchange-rate tool: a 5% depreciation (HK$7.80 to HK$8.19 per US$) cuts the US$ price of a HK$100 export from US$12.82 to US$12.21 (-4.76%), a subsidy to all exports at once, but it raises import prices and inflation and invites retaliation.

B8　Evaluation: effectiveness depends on the aim. For protecting jobs in the short run a tariff works directly; for long-run competitiveness, subsidies for R&D and training plus better infrastructure do more; protecting an inefficient industry only prolongs misallocation.

B9　Judgement: a tariff is one effective tool with high costs, not the most effective; the choice should rest on cost-benefit, retaliation risk and whether the industry can actually grow up.

Marking note　(a) 4 marks for the opportunity-cost working (2 per country), 2 for the PPC diagram, 2 for the terms-of-trade band, 2 for the gain. (b) 4 for mechanism and data, 3 per side, 3 for evaluation, 2 for the judgement.

Part (a) 10-mark bands

Band	Marks	Descriptor
9–10	9–10	Accurate and full explanation, precise terminology, fully labelled diagram consistent with the text, clear chain of reasoning.
7–8	7–8	Correct explanation with a step missing, or a minor diagram error (missing label or axis); terminology mostly accurate.
4–6	4–6	Basic definitions and part of the mechanism, but the explanation is fragmentary or the diagram is weak or inconsistent.
1–3	1–3	Only isolated correct terms; the mechanism is wrong or almost absent.
0	0–0	No relevant material.

Part (b) 15-mark bands

Band	Marks	Descriptor
13–15	13–15	Both sides, a real-world example used throughout, sustained and strong evaluation, clear judgement that answers the question.
10–12	10–12	Both sides present, real example used but thinly, evaluation appears but is not sustained, judgement reasonably clear.
6–9	6–9	Mostly description and one-sided analysis, evaluation reduced to a sentence, example vague.
1–5	1–5	Fragmentary, almost no evaluation, or the example is irrelevant.
0	0–0	No relevant material.

Suggested timing (75 minutes)

Stage	Minutes
Choose the question, read it, plan your answer	8
Part (a) 10 marks: definitions, mechanism, diagram, link back	24
Part (b) 15 marks: both sides, real example, evaluation, judgement	38
Check units, diagram labels and that the conclusion answers the question	5

Notices

•　Answer one question only: choose any one of the three, and answer both parts (a) and (b) for 25 marks.

•　Part (a) is 10 marks (explain, theory and diagram); part (b) is 15 marks (discuss/evaluate, with a real-world example used throughout).

•　Diagrams must be fully labelled: both axes, curve names, equilibrium and the direction of the shift, and must be referred to in the text.

•　Show the formula and each step of any calculation; a bare answer earns nothing.

•　The evaluation needs a trade-off and a judgement, not just two lists.

•　You have 75 minutes; spend about 8 minutes choosing the question and planning.

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All questions are original and are not IB past-paper questions; the grade guide is this paper’s own and is for self-assessment only. Your IB grade 1–7 comes from Paper 1, Paper 2 and the IA together, so this paper alone cannot predict it.