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IB Economics: Market Failure and Intervention (Basic, 10 Questions)
IB Economics: Market Failure and Intervention (Basic, 10 Questions)
The basic paper drills one substitution at a time: marginal social cost adds external cost to private cost, marginal social benefit adds external benefit, and the gaps give deadweight loss and tax revenue, all with answers.
Quick answer Answers in order: 55 dollars, 3,000 dollars, 375 dollars, 2,250 dollars, 42 dollars, 1,560 dollars, 150 units, 120 units, 24%, 1,000 dollars, provide it.
01 Paper details (check answers afterwards)
| Item | Detail |
|---|---|
| Questions | 10 questions |
| Suggested time | about 20 minutes |
| Difficulty mix | Foundation 10 |
| Chapter | Chapter: IB Economics: Market Failure and Government Intervention |
| Level | IB DP |
02 Questions (10 items)
- FoundationA factory has a private marginal cost of 40 dollars per unit and causes 15 dollars of marginal external cost per unit. Find the marginal social cost.
- FoundationIf output is 200 units, find the total external cost.
- FoundationThe socially optimum output is 150 units while the market produces 200 units, with an external cost of 15 dollars per unit. Find the deadweight loss.
- FoundationThe government imposes a Pigouvian tax of 15 dollars per unit and output falls to 150 units. Find the tax revenue.
- FoundationAn education service gives a marginal private benefit of 30 dollars and a marginal external benefit of 12 dollars. Find the marginal social benefit.
- FoundationThe market equilibrium is 100 units while the socially optimum is 130 units. The government pays a 12 dollar subsidy per unit. Find the total subsidy.
- FoundationA good has an equilibrium price of 20 dollars. After a price ceiling of 15 dollars, quantity demanded is 400 and quantity supplied is 250. Find the shortage.
- FoundationAfter a price floor of 30 dollars, quantity supplied is 300 and quantity demanded is 180. Find the surplus.
- FoundationA tax raises the price of a demerit good from 50 dollars to 62 dollars. Find the percentage increase in price.
- FoundationA public good costs 900 dollars a year. Each of the 200 households is willing to pay 5 dollars. Find the total willingness to pay and decide whether to provide it.
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | 55 dollars | MSC = MPC + MEC = 40 + 15 = 55 dollars. |
| 2 | 3,000 dollars | 200 x 15 = 3,000 dollars because the external cost is charged per unit. |
| 3 | 375 dollars | Deadweight loss = 0.5 x 15 x (200 – 150) = 375 dollars. |
| 4 | 2,250 dollars | 15 x 150 = 2,250 dollars, and the tax equals the marginal external cost at the optimum. |
| 5 | 42 dollars | MSB = MPB + MEB = 30 + 12 = 42 dollars. |
| 6 | 1,560 dollars | 12 x 130 = 1,560 dollars because the subsidy is paid on the subsidised quantity. |
| 7 | 150 units | Shortage = quantity demanded – quantity supplied = 400 – 250 = 150 units. |
| 8 | 120 units | Surplus = quantity supplied – quantity demanded = 300 – 180 = 120 units. |
| 9 | 24% | (62 – 50) / 50 x 100% = 24%. |
| 10 | 1,000 dollars, provide it | 200 x 5 = 1,000 dollars exceeds the 900 dollar cost, so total benefit covers the cost and it should be provided. |
04 What to do after marking
- After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
- Repeat the same item two days later; move to the next paper only when both attempts are correct.
- Parents only need the answer and note columns; there is no need to explain every item.
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