IB Economics Essay Questions P1 2005-2016

Higher Level Essays Microeconomics only 1.5 (old syllabus specimen) a. Explain the main features of an oligopolistic market. b. Discuss whether oligopolies work in favor of, or against the interest of consumers

[10] [15]

1.4 May 98 a. Explain what economists mean by ‘externalities’ or spillover effects. [10] b. Discus how an understanding of externalities (spillover effects) assists economists in analyzing environmental problems. [15]

1.5 Nov 98 a. Explain the term ‘natural monopolies’ and why are they considered a danger if left unregulated. [10] b. (not in 2013 syllabus)

1.2. May 99 a. Carefully explain what is it that price, income and cross elasticities of demand are meant to measure. [10] b. Discuss the practical importance of the concept of price elasticity of demand for (i) business organizations, and (ii) the government. [15]

1.4 Nov 99 a. (not in 2013 syllabus) b. Discuss solutions an economist might suggest to the problem of overfishing.

[15]

1.1 May 00 a. State the law of demand and distinguish between movements along the demand curve and shifts of the demand curve. [10] b. Explain, with the help of diagrams, the effect of an increase in the price of petrol is likely to have on (i) The market for cars. (ii) The market for coal. [10]

1.5 May 00 a. ‘Monopoly price is higher and output smaller than is socially ideal. The public is a victim.’ [Galbraith, 1974]. Explain the economic reasoning behind the statement that “monopoly price is higher and output smaller than is socially ideal. [10] b. To what extent do you agree that the public is always the victim of monopoly? [15]

Constantine Ziogas The IB @901 HAEF, Psychico College, Athens

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Nov 00 1.4 a. Explain why environmental problems are considered to be examples of market failure.

b.

To what extent can government intervention correct this failure?

[10] [15]

1.4 May 01 a. Using suitable diagrams, explain why there is likely to be an absence of long run economic profits in perfect competition. [10] b. To what extent might consumers benefit from increased competition between firms? [15]

1.5 Nov 01 a. How does a monopoly maintain supernormal (or abnormal) profit in the long run? b. Discuss whether monopoly is always undesirable.

[10] [15]

1.5 May 02 a. (not in syllabus) b. Discuss and evaluate the proposition that perfect competition is a more efficient market structure than monopoly. [15]

1.4 Nov 02 a. Explain why pollution is an example of a market failure. b. To what extent can the market system protect the environment?

[10] [15]

1.1 1.4 May 03 a. Explain the role that prices play in the allocation of r esources in free market economies. [10] b. Evaluate, using examples, the options available to governments to overcome the failure of markets arising from the production and consumption of demerit goods. [15]

1.5 May 03 a. Explain how monopoly power might arise. [10] b. Evaluate the extent to which governments should seek to control the growth of monopoly power. [15]

1.4 Nov 03 a. ‘National policies and international agreements must be implemented in order to r educe global environmental problems’. Using the concepts of market failure, explain the state ment above from an economist’s point of view. [10] b. With references to both national policies and international agreements, evaluate three solutions that could be recommended by economists. [15]

1.4 1.3 May 04 a. (not in syllabus) b. Discuss the economic arguments for and against imposing substantially higher levels of taxation on the sale of alcohol. [15]


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1.3 Nov 04 a. Explain the concepts of maximum and minimum price controls. [10] b. Evaluate the idea that government intervention in the form of price ceilings and price floors is well intentioned, but often leads to undesirable side effects. [15]

1.5 (2006 syllabus Specimen) a. Explain how a monopolist may be able to earn supernormal (abnormal) profits in the long run [10] b. ‘Production by a monopolist will always be against the interests of consumers’. Discuss. [15]

1.5 May 05 a. Explain how profit is determined in perfect competition. [10] b. ‘Whatever the type of market structure, profit maximization will always be the only goal of firms’. Discuss. [15]

1.5 Nov 05 a. Explain the differences between monopolistic competition and oligopoly as market structures [10] b. Discuss the differences between a collusive and a non-collusive oligopoly. [15]

1.4 May 06 a. Carefully distinguish between merit goods, demerit goods and public goods. b. Evaluate the view that governments should always intervene in markets for such goods as cigarettes and alcohol.

[10] [15]

1.5 Nov 06 a. Explain the necessary conditions for price discrimination to take place. [10] b. Discuss the advantages and disadvantages of price discrimination for consumers and producers. [15]

1.5 May 07 a. Explain how barriers to entry may affect market structure. b. Evaluate the view that monopoly is an undesirable type of market structure.

[10] [15]

1.5 Nov 07 a. Explain the difference between short run equilibrium and long r un equilibrium in monopolistic competition. [10] b. ‘Perfect competition is a more desirable market form than monopolistic competition’. Discuss. [15]


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1.5 May 08 a. Explain how a firm operating in an oligopolistic market might attempt to increase its market share. [10] b. Evaluate the view that producers, and not consumers, are the main beneficiaries of oligopolistic market structures. [15]

1.2 Nov 08 a. Explain the determinants of price elasticity of demand. b. (not in 2013 syllabus)

[10]

1.1 1.5 Nov 08 a. Explain the concepts of allocative and productive (technical) efficiency. [10] b. ’Monopolies are inefficient and therefore always act against the public interest’. Discuss this statement. [15]

1.5 May 09 a. In the theory of the firm, a distinction is made between short run cost curves and long run cost curves. Using appropriate cost curve diagrams, explain this distinction. [10] b. Evaluate the view that greater economic efficiency will always be achieved in perfect competition as compared to monopoly. [15]

1.5 Nov 09 a. Explain why a firm may practice price discrimination and the necessary conditions for it to take place. [10] b. ‘Although a firm may pursue a range of goals, economists usually assume that profit maximization is the main goal’. Discuss this statement. [15]

1.2 1.3 1.4 May 10 a. Explain the importance of price elasticity of demand and cross price elasticity of demand for business decision making. [10] b. Studies have shown that the demand for tobacco tends to be highly price inelastic. Evaluate the view that governments can best reduce smoking by substantially increasing taxes on cigarettes. [15]

1.4 Nov 10 a. Explain why negative externalities of production are an example of market failure b. Evaluate two policies that governments might implement to reduce negative externalities associated with the environment.

[10] [15]

1.5 May 11 TZ1 a. Using an appropriate diagram, explain how a monopolist might be able to make supernormal (abnormal) profits in the short run, and why these profits might continue to be earned in the long run. [10] b. Evaluate the view that monopolistic competition is a more economically desirable market form than monopoly. [15]


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1.5 May 11 TZ2 a. Using at least one diagram, explain why a firm in perfect competition might only be able to make supernormal (abnormal) profits in the short run and not in the long run. [10] b. Evaluate the view that perfect competition is a more desirable market form than oligopoly. [15]

1.5 May 12 TZ1 a. Using an appropriate diagram, explain how a monopolist might b e able to make supernormal profits in the short run, and why these profits might continue to be earned in the long run. [10] b. Evaluate the view that monopolistic competition is a more economically desirable market form than monopoly. [15]

1.5 May 12 TZ1 a. Explain the economic factors which may encourage the formation of a monopoly. b. Evaluate the view that natural monopoly is a more desirable market structure than perfect competition.

[10] [15]

1.5 May 12 TZ2 a. Using at least one diagram, explain why a firm in perfect competition might only be able to make supernormal (abnormal) profits in the short-run and not in the long-run. [10] b. Evaluate the view that perfect competition is a more desirable market form than oligopoly. [15]

1.5 May 12 TZ2 a. Explain why, in markets dominated by a few firms, prices may remain relatively stable. [10] b. ‘An industry with a larger number of firms will experience lower prices and greater efficiency than an industry with a smaller number of firms’. Evaluate this view. [15]

1.5 (2013 Specimen) a. Explain why firms in monopolistic competition can make economic (abnormal) profits only in the short run. [10] b. Compare and contrast the market structures on monopoly and monopolistic competition. [10]

1.4 (2013 Specimen) a. Explain the possible negative externalities that might arise from the increased use of cars. [10] b. Discuss economic policy options that a government might use to reduce negative externalities that might arise from the increased use of cars. [15]

1.5 May 13 TZ1 a. Explain why a monopoly can earn supernormal (abnormal) profits in the long-run. b. Evaluate the reasons why a government might allow a competitor into an industry that was previously a monopoly.


[10] [15]

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1.5 May 13 TZ1 a. Explain how welfare loss might result from monopoly power. [10] b. Discuss the effectiveness of government policies (legislation and regulation) to reduce monopoly power. [15]

1.3 Nov 13 a. Using a price ceiling diagram, analyze the impact a maximum price may have on the market for food. [10] b. Discuss the policies a government might use to make food more affordable to low income groups. [15]

1.3 1.4 Nov 13 a. Explain why governments impose indirect taxes. b. Discuss two possible government responses to threats to sustainability.

[10] [15]

1.1 1.3 May 14 TZ1 a. Using diagrams, explain how a change in one of the determinants of demand might increase the price of rice and how a change in one of the determinants of supply might decrease the price of rice. [10] b. Discuss the consequences of providing a subsidy on the production of rice for producers, consumers and the government. [15]

1.5 May 14 TZ1 a. Using diagrams, explain why a perfectly competitive firm can make economic (abnormal) profits only in the short run. [10] b. Discuss the consequences of a perfectly competitive industry becoming a monopoly. [15]

1.4 May 14 TZ2 a. Analyze the private and external benefits associated with the consumption of university education. [10] b. Evaluate the policies a government might use to increase the consumption of university education. [15]

1.5 May 14 TZ2 a. Using a diagram, explain why firms in monopolistic competition are neither allocatively nor productively efficient. [10] b. Examine the view that the market for food is more beneficial to consumers if dominated by a monopoly retailer (supermarket) rather than by a large number of small shops operating under monopolistic competition. [15]

1.1 1.4 Nov 14 a. Using diagram(s), explain the signaling and incentive functions of price. [10] b. Evaluate the view that the market failure caused by the consumption of demerit goods is best dealt with through the use of taxation. [15]


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1.5 Nov 14 a. Explain why firms might wish to collude. [10] b. Discuss the view that governments should always try to prevent a monopoly from occurring in a market. [15]

1.1 1.4 May 15 TZ1 a. Explain how changes in price work to reallocate resources in a market. [10] b. Discuss the view that the overuse of common access resources is best addressed by government. [15]

1.5 May 15 TZ1 a. Explain why prices tend to remain stable in oligopolistic markets. [10] b. Oligopolists often possess too much monopoly power. Evaluate whether governments should intervene in oligopolistic markets. [15]

1.5 May 15 TZ2 a. Explain two possible government responses to the abuse of monopoly power. [10] b. Evaluate the view that monopolies, despite their inefficiencies, may often be considered desirable. [15]

1.3 1.4 Nov 15 a. Explain why a government might decide to impose an indirect tax on the consumption of cigarettes. b. Discuss the possible consequences of the imposition on an indirect tax on cigarettes for the different stakeholders in the market.

[10] [15]

1.5 Nov 15 a. Explain why a firm in monopolistic competition will make only normal profit in the long run. [10] b. Evaluate the view that monopolistic competition is a more efficient market structure than monopoly. [15]

1.3 1.4 May 16 TZ1 a. Explain how the incidence of a tax depends on the price elasticity of demand and the price elasticity of supply. b. Discuss the consequences of imposing an indirect tax on unhealthy food.

[10] [15]

1.5 May 16 TZ1 a. Explain why firms may not always pursue the goal of profit maximization . [10] b. In monopoly, economic (abnormal) profit can be earned in b oth the short run and the long run. Examine the role of barriers to entry in earning economic profit. [15]


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1.4 May 16 TZ2 a. Market failure can occur when there is asymmetric information, abuse of monopoly power and positive externalities. Explain why any two of these represent market failure. [10] b. Evaluate the view that regulations are the most effective government response to the market failure of negative externalities. [15]

1.5 May 16 TZ2 a. Explain the conditions necessary for firms in oligopolistic markets to engage in price discrimination. b. Discuss whether producers in oligopolistic markets should compete or collude.


[10] [15]

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Macroeconomics only 2.4 2.5 2.6 May 89 − Discuss whether government macroeconomic demand management policies raise the real output of an economy in the long-run. [15]

2.3 Nov 90 − Unemployment can either be structural or cyclical. Explain how government intervention would differ in each case. [10]

2.3 May 91 − ‘A reduction in unemployment is desirable, but it is certain to lead to other problems, such as inflation or balance of payments difficulties.’ Discuss. [15]

2.3 May 92 − Discuss the view that unemployment is a more serious economic problem that inflation.

[15]

2.4 2.5 2.6 May 93 − Distinguish between ‘supply side’ policies and ‘demand management’ policies. Explain why many governments focus on the supply side. [10]

2.3 May 96 − Explain the social costs of unemployment? In view of these costs, explain why some countries give higher priority to tackling other problems such as inflation. [10]

2.6 Nov 96 − A government introduces ‘supply side’ policies in order to have a flexible work force. Discuss the effectiveness of such policies. [15]

2.3 May 97 − Explain how would a monetarist’s view of economic problems (such as inflation and unemployment) and policies differ from that of a Keynesian. [10]

2.3 May 99 a. Briefly explain the various objectives of macroeconomic policy. [10] b. Examine the view that the control of inflation should always be the most important objective of governments. [15]


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2.3 Nov 99 Explain whether there a long-term trade-off between inflation and unemployment.

[10]

2.3 May 01 a. Explain how governments can use fiscal policy to redistribute income. [10] b. Evaluate the advantages and disadvantages of policies aimed at reducing income inequalities. [15]

2.3 Nov 01 − ‘What is wanted is not inflation (a rise in the general price level) or deflation (a fall in the general price level) but price stability.’ Discuss. [15]

2.3 May 02 a. Explain the consequences of unemployment in an economy. b. Examine the policies that may be used to reduce unemployment.

[10] [15]

2.3 Nov 02 a. Explain the main macroeconomic objectives of government. [10] b. Assume the government chooses to pursue one of these objectives. Evaluate the possible consequences for the other objectives. [15]

2.3 May 03 − Evaluate the view that the achievement of price stability should be the major objective of government economic policy. [15]

2.3 Nov 03 a. With the help of diagrams distinguish between demand-pull and cost-push inflation. [10] b. Examine policies which would be appropriate to deal with each of these two types of inflation. [15]

2.3 2.2 May 04 a. ‘Unemployment remains persistently high in a majority of countries throughout the world.’ Explain the economic problems that high unemployment may cause for a country. [10] b. Discuss the reasons why governments find the goal of full employment difficult to achieve. [15]

2.4 2.5 2.6 Nov 04 − Evaluate the effectiveness of demand-side and supply-side policies in the short and long run. [15]


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2.3 (Specimen for the 06 syllabus) a. Explain the possible causes of inflation. b. Evaluate possible policies that might be used to lower the natural rate of unemployment.

[10] [15]

2.3 May 05 a. Using suitable examples, explain the multiplier effect, automatic stabilizers and the crowding-out effect. [10] b. Evaluate the proposition that the most effective way to reduce unemployment is through the use of demand-side policies. [15]

2.3 Nov 05 a. Explain the relationship between the Lorenz curve and the Gini coefficient. b. Evaluate the effectiveness of the various methods that government may use to redistribute income.

2.3 2.4 2.5 2.6 May 06 a. Explain the difference between demand-side and supply-side policies. b. ‘Higher economic growth can only be achieved through the implementation of supply-side policies’. Discuss.

2.2 2.4 2.5 Nov 06 a. Explain how interest rates can be used to bring about an increase in economic activity. b. Discuss the strengths and weaknesses of demand-side policies.

[10] [15]

[10] [15]

[10] [15]

2.3 Nov 06 a. Explain possible causes of inflation. [10] b. Evaluate the possible effects of a persistently high inflation rate on a country’s current account balance and its exchange rate. [15]

2.3 May 07 a. Explain why a government might find it difficult to maintain a low rate of inflation as the economy approaches full employment. [10] b. Evaluate the proposition that the priority in economic management should be the maintenance of low unemployment. [15]

2.2 Nov 07 a. Using one or more diagrams, explain the difference between the equilibrium level of national income and the full employment level of national income. [10] b. Evaluate the policies a government may use to increase the full employment level of national income. [15]


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2.2 2.3 May 08 a. ‘The effect of an increase in aggregate demand on output and the price level depends on the shape of the aggregate supply curve’. Explain this statement. [10] b. Evaluate the likely effects of a falling rate of inflation (deflation) on the performance of an economy. [15]

2.3 Nov 08 a. Explain the difference between progressive taxation and regressive taxation. b. Evaluate the possible effects of a decrease in direct taxation on a country’s inflation rate, unemployment rate and balance of payments.

[10] [15]

2.3 May 09 a. Explain the possible causes of a rise in the rate of inflation in an economy. b. Evaluate the possible impact on economic performance that may result from a government decision to bring inflation under control.

[10] [15]

2.3 Nov 09 a. Explain how the rate of inflation might be measured and the factors which might make accurate measurement difficult. [10] b. Evaluate the extent to which an individual government can influence the rate of inflation in its country. [15]

2.3 May 10 TZ1 a. Explain why a country may wish to reduce its rate of inflation. [10] b. Evaluate the likely impact on the economy of relying on higher interest rates to reduce the rate of inflation. [15]

2.3 May 10 TZ2 a. Explain why a country may wish to reduce its unemployment rate. [10] b. Evaluate the likely impacts on the economy of r elying on demand-side policies to reduce the unemployment rate. [15]

2.6 Nov 10 a. Explain how supply-side improvements to an economy may be achieved through the use of taxes and government spending. [10] b. Evaluate the use of supply-side policies to reduce unemployment. [15]

2.3 May 11 TZ2 a. Explain two policies a government might use to redistribute income. [10] b. ‘Measures to promote greater income equality should be a key feature of government economic policy.’ Evaluate this statement. [15]


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2.2 May 12 TZ2 a. During the global financial crisis of 2008-2009, there was a fall in consumer spending in many countries. Explain the factors which might be responsible for causing consumer spending to fall. [10] b. Evaluate the possible consequences of falling consumer spending for a country’s macroeconomic performance. [15]

2.3 May 12 TZ1 a. Explain why governments may view deflation as a threat. b. Evaluate the view that a low and stable rate of inflation is beneficial for an economy.

[10] [15]

2.3 2.4 2.5 May 12 TZ2 a. Explain why governments may pursue the macroeconomic goals of low inflation and low unemployment. [10] b. Evaluate the extent to which the use of expansionary demand-side policies may lead to conflicts between the various goals of macroeconomic policy. [15]

2.3 Nov 12 a. Explain how a government could bring about a more equal distribution of income. [10] b. Evaluate the effectiveness of government policies designed to reduce inequalities in income. [15]

2.3 (Specimen for 2013 syllabus) a. Explain what might happen to the level of inflation if a government decides to move from a budget surplus to a budget deficit. [10] b. To what extent is an increase in interest rates the most effective cure for inflation? [15]

2.1 (Specimen for 2013 syllabus) a. Analyze the methods by which GDP may be measured. [10] b. ‘Using real GDP data is a very useful means of comparing economic activity between countries.’ Discuss this statement. [15]

2.3 May 13 a. Explain why the market system may not result in an equitable distribution of income. [10] b. Evaluate government policies to promote equity in terms of their effects on efficiency in the allocation of resources. [15]

2.4 2.2 May 13 TZ2 a. Using a diagram, explain how expansionary monetary policy might be used to close a deflationary (recessionary) gap. [10] b. Discuss why, in contrast to the monetarist / new classical model, an economy can remain stuck in a deflationary gap according to the Keynesian model. [15]


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2.4 2.5 2.6 May 13 TZ2 a. Explain how labor market reforms may be used to promote economic growth. [10] b. ‘Market-oriented supply-side policies will always be more effective in promoting economic growth than demand-side policies.’ To what extent do you agree with this statement? [15]

2.1 Nov 13 a. Explain how changes in the size of the circular flow depend on the relative size of injections and leakages. [10] b. Evaluate the use of national income statistics for making comparisons of the standard of living over time. [15]

2.3 Nov 13 a. Explain why measuring the rate of inflation using a consumer price index (CPI) may not be accurate. [10] b. Evaluate two government policies to reduce inflation. [15]

2.3 May 14 TZ1 a. Using two AD/AS diagrams, explain cost-push and demand-pull inflation. [10] b. ‘The rate of inflation can be most effectively reduced through the use of monetary policy.’ To what extent do you agree with this statement? [15]

2.3 May 14 TZ1 a. Explain two factors which might cause economic growth. [10] b. Evaluate the view that the benefits of economic growth will al ways outweigh the costs. [15]

2.3 Nov 14 a. Distinguish between structural and demand-deficient (cyclical) unemployment. [10] b. Discuss the view that the problem of unemployment can be r educed through the use of supplyside policies. [15]

2.3 Nov 14 a. Using an appropriate diagram, explain how a recession might lead to more poverty. [10] b. Evaluate the view that attempts to achieve greater equity in the distribution of income will reduce economic efficiency. [15]

2.3 May 15 TZ1 a. Explain what is meant by natural rate of unemployment. b. Discuss the view that there is no trade-off between inflation and unemployment.

[10] [15]

2.2 2.6 May 15 TZ1 a. Explain how business spending on research and development and government expenditure on infrastructure might shift the long-run aggregate supply curve. [10] b. Evaluate the effectiveness of interventionist supply-side policies to achieve economic growth. [15]


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2.3 May 15 TZ2 a. Using the concept of the Keynesian multiplier, explain the possible impact of a rise in government spending on economic growth. [10] b. To what extent might unemployment represent an economic and social problem? [15]

2.5 2.3 Nov 15 a. Explain, using a diagram, how interest rates are determined in an economy. [10] b. Discuss the effectiveness of using expansionary monetary policy to reduce unemployment. [15]

2.2 2.3 Nov 15 a. Explain how a rise in consumer confidence might affect economic growth. b. Discuss the view that economic growth always raises living standards in a country.

[10] [15]

2.3 2.4 May 16 TZ1 a. Explain how an increase in the level of taxation can influence the level of aggregate demand in an economy. [10] b. Evaluate the effectiveness of fiscal policy in promoting economic activity during a recession. [15]

2.2 2.3 May 16 TZ1 a. Using the Keynesian AD/AS diagram, explain why an economy may be in equilibrium at any level of real output. [10] b. Evaluate the view that increased investment is the most important factor in achieving a faster rate of economic growth. [15]

2.5 May 16 TZ2 a. Explain the impact of automatic stabilizers on an economy. b. Evaluate the effectiveness of fiscal policy in achieving economic growth.

[10] [15]

2.2 2.3 May 16 TZ2 a. Using the Keynesian AD/AS diagram, explain why an economy may be in equilibrium at any level of real output. [10] b. Evaluate the view that increased investment is the most important factor in achieving a faster rate of economic growth. [15]


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IB Economics Essay Questions P1 2005-2016

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