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IB Economics: Market Failure – Practice Paper 1 (10 Questions)
IB Economics: Market Failure – Practice Paper 1 (10 Questions)
Paper 1 starts from external cost: reading the private and social cost curves, finding the market and optimal quantities, computing deadweight loss, comparing a specific tax with tradable permits, and handling a positive externality. Every item carries an answer and a one-line note.
Quick answer The curves are private cost ten plus zero point five Q, social cost fourteen plus zero point five Q and social benefit forty minus zero point five Q. Output is thirty in the market and twenty-six at the optimum, with eight dollars of deadweight loss.
01 Paper details (check answers afterwards)
| Item | Detail |
|---|---|
| Questions | 10 questions |
| Suggested time | 25 minutes |
| Difficulty mix | Foundation 4 · Intermediate 3 · Challenge 2 · Error redo 1 |
| Chapter | Chapter: IB Economics: Market Failure – Tutor Lesson Plan |
| Level | IB SL |
02 Questions (10 items)
- FoundationA good has MPC equals ten plus zero point five Q in dollars. What is the marginal private cost at a quantity of twenty?
- FoundationMPC is ten plus zero point five Q and MSC is fourteen plus zero point five Q. What is the external cost per unit?
- FoundationMSB is forty minus zero point five Q and MPC is ten plus zero point five Q. Find the free-market quantity and price.
- FoundationWith MPC ten plus zero point five Q, MSC fourteen plus zero point five Q and MSB forty minus zero point five Q, find the socially optimal quantity.
- IntermediateFrom the same curves, what is the deadweight loss caused by the negative externality?
- IntermediateThe government imposes a specific tax of four dollars per unit. Find the price paid by consumers, the amount kept by producers and total tax revenue.
- IntermediateAn education service has MPB thirty minus zero point five Q, a marginal external benefit of four dollars and MPC ten plus zero point five Q. Find the market quantity, the optimal quantity and the per-unit subsidy.
- ChallengeIf the tax is only two dollars per unit, what quantity is traded and what deadweight loss remains?
- ChallengeThe government issues twenty-six tradable permits instead. What is the permit price and why?
- Error redoA student uses MPC equal to MSB and answers thirty for the socially optimal quantity. Give the correct quantity and the deadweight loss.
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | the marginal private cost is twenty dollars | Substituting twenty gives ten plus ten, which is twenty. |
| 2 | four dollars per unit | The social and private cost curves differ by four dollars at every quantity. |
| 3 | a quantity of thirty at a price of twenty-five dollars | Setting private cost equal to marginal social benefit gives thirty units and twenty-five dollars. |
| 4 | a quantity of twenty-six at a price of twenty-seven dollars | Social cost equal to social benefit gives twenty-six units. |
| 5 | the deadweight loss is eight dollars | The triangle is half of four units times four dollars, which is eight. |
| 6 | consumers pay twenty-seven, producers keep twenty-three and revenue is one hundred and four dollars | The four-dollar wedge splits two and two, and the tax base of twenty-six gives one hundred and four. |
| 7 | market twenty, optimum twenty-four, subsidy four dollars | Private cost meets private benefit at twenty and social benefit at twenty-four, so the gap is four. |
| 8 | a quantity of twenty-eight with two dollars of deadweight loss left | The smaller tax leaves twenty-eight units and a residual triangle of two dollars. |
| 9 | about four dollars, the gap between social and private cost at the optimal quantity | The cap fixes output at twenty-six, so firms pay up to the external cost of four dollars. |
| 10 | twenty-six units and eight dollars of deadweight loss | The optimum needs social cost, not private cost, because four dollars of external cost is omitted. |
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.
Questions and answers are written originally by the TutorZone team and are not taken from any school, publisher or examination authority paper. Every value is checked by computer.
