Must I draw the deadweight loss triangle in diagram questions?

Yes. Marks are awarded for labelling the gap between marginal social cost and marginal private cost and marking the triangle between the optimum and market quantity; a written description alone usually earns only partial marks.

How can intervention create misallocation?

If information is poor, administration is costly or policy is captured by interest groups, the cost of intervention can exceed the benefit, producing government failure worse than the original market failure.

IB Economics: Market Failure and Intervention (Advanced, 10 Questions)

2026-11-08

Tutor Prep Guide · S2 Mathematics

The advanced paper combines equations with intervention: solve the equilibrium, rewrite supply for a tax or subsidy, then compute incidence, revenue and deadweight loss, all with answers.

Quick answer Answers in order: P = 20 dollars, Q = 300 units, P = 22 dollars, Q = 280 units, Consumers 2 dollars, producers 1 dollar, 840 dollars, 30 dollars, P = 30 dollars, Q = 250 units, P = 26 dollars, Q = 270 units, Consumers 4 dollars, producers 2 dollars, 13.3%, 1,620 dollars; 60 dollars.

01 Paper details (check answers afterwards)

Item	Detail
Questions	10 questions
Suggested time	about 30 minutes
Difficulty mix	Intermediate 10
Chapter	Chapter: IB Economics: Market Failure and Government Intervention
Level	IB DP

02 Questions (10 items)

IntermediateDemand is Qd = 500 – 10P and supply is Qs = 20P – 100. Find the equilibrium price and quantity.
IntermediateThe government imposes a per-unit tax of 3 dollars on producers, so supply becomes Qs = 20P – 160. Find the new equilibrium price and quantity.
IntermediateHow much of the 3 dollar tax is borne by consumers and by producers per unit?
IntermediateFind the government tax revenue from that per-unit tax.
IntermediateFind the deadweight loss caused by the tax.
IntermediateDemand is Qd = 400 – 5P and supply is Qs = 10P – 50. Find the equilibrium price and quantity.
IntermediateThe government pays a subsidy of 6 dollars per unit to producers, so supply becomes Qs = 10P + 10. Find the new equilibrium price and quantity.
IntermediateHow much of the 6 dollar subsidy benefits consumers and producers per unit?
IntermediateFind the percentage fall in price, to one decimal place.
IntermediateFind the total cost of the subsidy and the deadweight loss from over-consumption.

03 Answers and one-line notes

#	Answer	One-line note
1	P = 20 dollars, Q = 300 units	500 – 10P = 20P – 100, so 600 = 30P, P = 20 and Q = 500 – 200 = 300.
2	P = 22 dollars, Q = 280 units	500 – 10P = 20P – 160, so 660 = 30P, P = 22 and Q = 280.
3	Consumers 2 dollars, producers 1 dollar	The price paid rises from 20 to 22 dollars, so consumers bear 2 dollars and producers bear the remaining 1 dollar.
4	840 dollars	3 x 280 = 840 dollars, since revenue is the tax rate times the quantity traded after tax.
5	30 dollars	Deadweight loss = 0.5 x 3 x (300 – 280) = 30 dollars.
6	P = 30 dollars, Q = 250 units	400 – 5P = 10P – 50, so 450 = 15P, P = 30 and Q = 250.
7	P = 26 dollars, Q = 270 units	400 – 5P = 10P + 10, so 390 = 15P, P = 26 and Q = 270.
8	Consumers 4 dollars, producers 2 dollars	The price falls from 30 to 26 dollars, so consumers gain 4 dollars and producers keep the other 2.
9	13.3%	(30 – 26) / 30 x 100% = 13.3% to one decimal place.
10	1,620 dollars; 60 dollars	Total cost 6 x 270 = 1,620 dollars and deadweight loss 0.5 x 6 x 20 = 60 dollars.

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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