IB Economics higher level paper 3 with answers

Command terms to expect on paper 3: Calculate: “Obtain a numerical answer showing the relevant stages in the working.” Construct: “Display information in a diagrammatic or logical form.” Derive: “Manipulate a mathematical relationship to give a new equation or relationship.” Determine: “Obtain the only possible answer.” Draw: “Represent by means of a labelled, accurate diagram or graph, using a pencil. A ruler (straight edge) should be used for straight lines. Diagrams should be drawn to scale. Graphs should have points correctly plotted (if appropriate) and joined in a straight line or smooth curve. Identify: “Provide an answer from a number of possibilities.” Label: “Add labels to a diagram.” Plot: “Mark the position of points on a diagram.” Show: “Give the steps in a calculation or derivation.” Show that: “Obtain the required result (possibly using information given) without the formality of proof. “Show that” questions do not generally require the use of a calculator.” Sketch: “Represent by means of a diagram or graph (labelled as appropriate). The sketch should give a general idea of the required shape or relationship, and should include relevant features.” Solve: “Obtain the answer(s) using algebraic and/or numerical and/or graphical methods.” Calculations you may be required to make: Section 1 Microeconomics 1.1 Markets Demand: 1. Explain a demand function (equation) of the form Qd = a – bP. 2. Plot a demand curve from a linear function (eg. Qd = 60 – 5P). 3. Identify the slope of the demand curve as the slope of the demand function Qd = a – bP, that is –b (the coefficient of P). 4. Outline why, if the “a” term changes, there will be a shift of the demand curve. 5. Outline how a change in “b” affects the steepness of the demand curve. Supply: 1. Explain a supply function (equation) of the form Qs = c + dP. 2. Plot a supply curve from a linear function (eg, Qs = –30 + 20 P). 3. Identify the slope of the supply curve as the slope of the supply function Qs = c + dP, that is d (the coefficient of P). 4. Outline why, if the “c” term changes, there will be a shift of the supply curve. 5. Outline how a change in “d” affects the steepness of the supply curve. Equilibrium: 1. Calculate the equilibrium price and equilibrium quantity from linear demand and supply functions. HOW TO: Set the demand and supply equations equal to one another and solve for P. Once you know the equilibrium price, plug it into either equation to find the quantity. 2. Plot demand and supply curves from linear functions, and identify the equilibrium price and equilibrium quantity. HOW TO: Find the q-intercept of demand (this is the ‘a’ variable) Find the p-intercept of both demand and supply (set Q = 0 and solve for P in both equations) Draw the demand curve by connecting the q-intercept and the p-intercept of demand Find the equilibrium price Plot the supply curve by connecting the p-intercept of supply and the equilibrium price. Draw dotted lines over to the equilibrium price and down to the equilibrium quantity. 3. State the quantity of excess demand or excess supply in the above diagrams. HOW TO: There will only be an excess demand or supply if the question asks how a price OTHER THAN the equilibrium would affect the market. See the section on price controls below for more. 1.2 Elasticities: 1. Calculate PED using the following equation: PED=% change in Qd% change in P 2. Calculate PED between two designated points on a demand curve using the PED equation above. 3. Calculate XED using the following equation: XED = % change in Qd of good X% change in price of good Y 4. Calculate YED using the following