Unit 2 · Unit 2: Microeconomics
The Complete IB Economics Guide · IB EconomicsUnit 2 · Unit 2: Microeconomics
- The Complete IB Economics Guide
- IB Economics
- 4 sections
International Baccalaureate does not publish a per-unit weighting for this exam. Exam structure (official): SL: External Assessment (70%) · Paper 1 (75 min, 30%) · Paper 2 (105 min, 40%) · Internal Assessment (30%); HL: External Assessment (285 min, 80%) · Paper 1 (75 min, 20%) · Paper 2 (105 min, 30%) · Paper 3 (105 min, 30%) · Internal Assessment (20%). Be ready to carry the same unit skills and representations into a complete answer on every paper. Demand records quantities consumers are willing and able to buy at alternative prices, holding non-price determinants constant. Supply records quantities producers are willing and able to sell. Equilibrium is the price at which planned quantity demanded equals planned quantity supplied.
- How IB Economics assesses this International Baccalaureate publishes no per-unit percentage for IB Economics; Paper 1 accounts for 30% of the SL total and 20% of the HL total. · SL: External Assessment (70%) · Paper 1 (75 min, 30%) · Paper 2 (105 min, 40%) · Internal Assessment (30%) | HL: External Assessment (285 min, 80%) · Paper 1 (75 min, 20%) · Paper 2 (105 min, 30%) · Paper 3 (105 min, 30%) · Internal Assessment (20%) · show the model with a demand-and-supply diagram with both equilibria labeled, an elasticity calculation using one percentage-change method, a welfare diagram comparing private and social outcomes
- Key skills Demand, Supply, and Their Non-Price Determinants, Competitive Market Equilibrium, the Price Mechanism, and Allocative Efficiency, Price and Income Elasticity of Demand and Price Elasticity of Supply, Government Intervention: Price Controls, Indirect Taxes, and Subsidies, Market Failure: Externalities, Common Pool Resources, and Public Goods, Rational Consumer Choice, Behavioral Economics, and Business Objectives (HL), Market Power: Perfect Competition, Monopoly, Oligopoly, and Monopolistic Competition (HL), Asymmetric Information and the Market's Inability to Achieve Equity (HL)
- How to study for Unit 2 This page turns a demand-and-supply diagram with both equilibria labeled, an elasticity calculation using one percentage-change method, a welfare diagram comparing private and social outcomes into one route: Define the market and period, label price and quantity, and decide whether the event causes a movement or a curve shift..
- The organizing decision Identify the determinant that changes demand or supply, then trace the new equilibrium and its welfare effects.
What IB Economics Unit 2 covers
Use this map to connect each assessed skill to the relationship or representation that makes it visible.
Demand, Supply, and Their Non-Price Determinants
tax incidence; price elasticity of demand; marginal social cost02Competitive Market Equilibrium, the Price Mechanism, and Allocative Efficiency
tax incidence; price elasticity of demand; marginal social cost03Price and Income Elasticity of Demand and Price Elasticity of Supply
tax incidence; price elasticity of demand; marginal social cost04Government Intervention: Price Controls, Indirect Taxes, and Subsidies
tax incidence; price elasticity of demand; marginal social cost05Market Failure: Externalities, Common Pool Resources, and Public Goods
tax incidence; price elasticity of demand; marginal social cost06Rational Consumer Choice, Behavioral Economics, and Business Objectives (HL)
tax incidence; price elasticity of demand; marginal social cost07Market Power: Perfect Competition, Monopoly, Oligopoly, and Monopolistic Competition (HL)
tax incidence; price elasticity of demand; marginal social cost08Asymmetric Information and the Market's Inability to Achieve Equity (HL)
tax incidence; price elasticity of demand; marginal social costInternational Baccalaureate does not publish a per-unit weighting for this exam.
Official unit name and weighting: IB subject guide / subject brief.
Unit map: explain how markets coordinate
Connect the published share to the unit model
Demand records quantities consumers are willing and able to buy at alternative prices, holding non-price determinants constant. Supply records quantities producers are willing and able to sell. Equilibrium is the price at which planned quantity demanded equals planned quantity supplied.
A price change causes movement along an unchanged curve. Income, tastes, expectations, related-goods prices, input costs, technology, taxes, subsidies, and the number of buyers or sellers can shift a curve. Before drawing, identify whether the event changes willingness to buy or the cost and capacity to sell.
Elasticity measures responsiveness, while welfare analysis compares private and social outcomes. Intervention can change price, quantity, government revenue, producer revenue, consumer expenditure, and surplus. A full explanation links the policy instrument to the curve or wedge and then to affected groups.
For a market diagram, define the market and period, label price and quantity, mark the initial demand, supply, and equilibrium, and shift only the curve affected by the stated determinant. Label the new equilibrium and explain the direction of both price and quantity. For intervention or market failure, identify the private and social comparison or policy wedge, show the market and preferred outcomes, and then assess welfare, stakeholder effects, and practical limits before reaching a qualified judgment.
The decision that organizes this unit
Define the system and choose the route before calculating
Identify the determinant that changes demand or supply, then trace the new equilibrium and its welfare effects.
Define the market and period, label price and quantity, and decide whether the event causes a movement or a curve shift.
Mechanism route and repair branches
Relationships to preserve
- A price change creates movement along a curve, while a non-price determinant shifts demand or supply.
- Equilibrium occurs where planned quantity demanded equals planned quantity supplied.
- A policy wedge changes prices and quantities, so evaluation must follow the effects on welfare and affected groups.
Representations to read
- a demand-and-supply diagram with both equilibria labeled
- an elasticity calculation using one percentage-change method
- a welfare diagram comparing private and social outcomes
Branches to reject
- shifting both curves when only one determinant changes
- mixing percentage-change conventions in an elasticity calculation
- treating a price change by itself as proof of improved welfare
| Key concept | Why it's hard | What scores |
|---|---|---|
| Equilibrium | Students shift both curves without a second determinant. | Identify one determinant and move one curve. |
| Elasticity | Percentage changes are mixed with percentage points. | Show a consistent percentage-change method. |
| Welfare | A price change is mistaken for proof of improvement. | Compare private and social marginal values. |
| Diagram sequence | Market → initial equilibrium → one justified shift → new equilibrium | Moving a curve without naming its determinant. |
| Policy judgment | Outcome → welfare or equity effect → implementation limit | Calling a price change an improvement by itself. |
| Written reading | State both equilibrium price and quantity directions. | Letting the diagram stand without a causal explanation. |
How IB Economics assesses Unit 2: Microeconomics
What a complete response must make visible
Match the task to evidence that a reader can audit, then check the most likely reasoning failure before finalizing the response.
| Task | Evidence to show | Hurdle |
|---|---|---|
| Demand, Supply, and Their Non-Price Determinants | tax incidence; price elasticity of demand; marginal social cost | shifting both curves when only one determinant changes |
| Competitive Market Equilibrium, the Price Mechanism, and Allocative Efficiency | tax incidence; price elasticity of demand; marginal social cost | mixing percentage-change conventions in an elasticity calculation |
| Price and Income Elasticity of Demand and Price Elasticity of Supply | tax incidence; price elasticity of demand; marginal social cost | treating a price change by itself as proof of improved welfare |
| Government Intervention: Price Controls, Indirect Taxes, and Subsidies | tax incidence; price elasticity of demand; marginal social cost | shifting both curves when only one determinant changes |
| Market Failure: Externalities, Common Pool Resources, and Public Goods | tax incidence; price elasticity of demand; marginal social cost | mixing percentage-change conventions in an elasticity calculation |
| Rational Consumer Choice, Behavioral Economics, and Business Objectives (HL) | tax incidence; price elasticity of demand; marginal social cost | treating a price change by itself as proof of improved welfare |
| Market Power: Perfect Competition, Monopoly, Oligopoly, and Monopolistic Competition (HL) | tax incidence; price elasticity of demand; marginal social cost | shifting both curves when only one determinant changes |
| Asymmetric Information and the Market's Inability to Achieve Equity (HL) | tax incidence; price elasticity of demand; marginal social cost | mixing percentage-change conventions in an elasticity calculation |
Worked example: draw and read a demand shift
Read each question as it appears on the exam paper, choose your answer, then tap it to see the feedback.
Practice 1: Calculate and draw a demand shift
A bicycle-share market experiences a change in demand.
Weekly demand for rides is Qd = 100 − 5P and supply is Qs = 10P, where P is dollars per ride and Q is hundreds of rides. A new employer benefit changes demand to Qd = 120 − 5P. Calculate both equilibria and draw demand, supply, E0, E1, and the rightward shift.
Show your working.
Label the diagram fully.
A. Solve Qd = Qs for each demand equation, hold supply fixed, and show D0 shifting right to D1 with both equilibria labeled.
✅ Correct! 😊 This uses both market-clearing conditions and changes only the curve affected by the employer benefit. The solved intersections place E0 and E1 accurately.
B. Move along D0 to P = $8.00 and leave the demand curve unchanged.
❌ Not quite 😭 The new employer benefit is a non-price determinant of demand, not a price change. Keeping D0 unchanged fails to represent the new equation.
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C. Shift both demand and supply right because higher demand automatically increases supply.
❌ Not quite 😭 A higher quantity supplied at the new price is movement along S, not a supply shift. No separate supply determinant is given.
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D. Use Q = 120 as the new equilibrium because it is the intercept of the new demand equation.
❌ Not quite 😭 The demand intercept is not the market equilibrium. The new equilibrium occurs where the new demand curve intersects supply.
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Full explanation
- Step 1Set 100 − 5P = 10P to obtain P0 ≈ $6.67 and Q0 ≈ 66.7 hundred rides.
- Step 2Set 120 − 5P = 10P to obtain P1 = $8.00 and Q1 = 80 hundred rides.
- Step 3Draw Price and Quantity axes, label D0, D1, and unchanged S, then add a rightward D0 → D1 arrow.
- Step 4Mark E0 and E1 at the calculated intersections and state that equilibrium price and quantity both rise.
Practice 2: Evaluate a corrective tax
Freight vehicles create air pollution costs not paid by transport firms or their customers.
Using a welfare diagram and a real-world example, evaluate the use of an indirect tax to correct the market failure caused by freight-vehicle emissions.
Compare private and social outcomes.
Support the response with economic reasoning.
A. Show marginal social cost above marginal private cost, identify market overproduction, use a tax wedge to move quantity toward the social outcome, then evaluate information, elasticity, equity, enforcement, revenue use, and alternatives.
✅ Correct! 😊 This compares the private and social outcomes before judging the policy. It connects the tax mechanism to welfare and then tests practical and distributional limits.
B. Show demand shifting left because pollution makes consumers dislike freight services, then call every fall in quantity a welfare improvement.
❌ Not quite 😭 The stated problem is an external production cost, so the private-social cost gap is central. A lower quantity alone does not prove that the socially efficient outcome has been reached.
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C. Draw only market demand and supply, describe a higher price, and conclude that the policy succeeds.
❌ Not quite 😭 A standard market diagram cannot display the external cost or welfare loss by itself. The response also needs evaluation of the tax’s size and consequences.
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D. Reject the tax solely because firms pay more, without considering pollution benefits, consumers, government revenue, or alternatives.
❌ Not quite 😭 This considers only one stakeholder and omits the market failure the policy addresses. Evaluation requires weighing private burdens against social benefits and implementation constraints.
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Full explanation
- Step 1Explain that freight emissions impose external costs, so marginal social cost exceeds marginal private cost and the market quantity is above the socially preferred quantity.
- Step 2Draw the private and social cost curves, market and social outcomes, welfare loss, and a tax wedge intended to internalise the external cost.
- Step 3Trace higher private costs to a higher price and lower quantity, and consider pollution reduction, revenue, firms, consumers, workers, and nearby residents.
- Step 4Evaluate measurement difficulties, elasticities, evasion, equity, revenue use, cleaner substitutes, regulation, and time horizon before giving a conditional judgment.
Key terms for Unit 2: Unit 2: Microeconomics
Models, uses, and boundaries
- Explain how markets coordinate
- Market equilibrium is found by setting quantity demanded equal to quantity supplied. Key relationship for unit map: explain how markets coordinate.
- The demand increase raises the market-clearing price from 100/15 to 120/15 in this bicycle-share example
- The demand shift raises the market-clearing price in the bicycle-share example. The demand increase raises the market-clearing price from 100/15 to 120/15 in this bicycle-share example.
- Midpoint percentage changes keep the elasticity calculation consistent in both directions
- Price elasticity of demand compares the percentage change in quantity demanded with the percentage change in price. Midpoint percentage changes keep the elasticity calculation consistent in both directions.
IB Economics Unit 2 FAQ
How much of IB Economics does Unit 2 carry?
International Baccalaureate does not publish a per-unit weighting for this exam.
What is the first move on a Unit 2: Microeconomics problem?
Define the market and period, label price and quantity, and decide whether the event causes a movement or a curve shift.
Which relationships should I preserve?
A price change creates movement along a curve, while a non-price determinant shifts demand or supply. Equilibrium occurs where planned quantity demanded equals planned quantity supplied. A policy wedge changes prices and quantities, so evaluation must follow the effects on welfare and affected groups.
Which representations should I practice?
Practice moving among a demand-and-supply diagram with both equilibria labeled, an elasticity calculation using one percentage-change method, a welfare diagram comparing private and social outcomes.
What error should I check before submitting an answer?
Check for shifting both curves when only one determinant changes; mixing percentage-change conventions in an elasticity calculation; treating a price change by itself as proof of improved welfare.
Evidence workshop
Continue from the free model into complete practice
The full unit guide continues with the chapter’s worked examples, figures, scoring tables, and answer checks.
- Worked example: draw and read a demand shift
- Worked example: calculate elasticity consistently
Full unit practice. Open the complete guide for the full evidence workshop and synthesis.
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International Baccalaureate does not publish a per-unit weighting for this exam.How to study IB Economics Unit 2
Start with the organizing decision
Before solving, restate the decision in operational terms: Identify the determinant that changes demand or supply, then trace the new equilibrium and its welfare effects.. Your first written move should be to Define the market and period, label price and quantity, and decide whether the event causes a movement or a curve shift..
Practice the same idea in several representations
Rotate through a demand-and-supply diagram with both equilibria labeled, an elasticity calculation using one percentage-change method, a welfare diagram comparing private and social outcomes. Use each representation to practice Demand, Supply, and Their Non-Price Determinants, Competitive Market Equilibrium, the Price Mechanism, and Allocative Efficiency, Price and Income Elasticity of Demand and Price Elasticity of Supply, Government Intervention: Price Controls, Indirect Taxes, and Subsidies, Market Failure: Externalities, Common Pool Resources, and Public Goods, Rational Consumer Choice, Behavioral Economics, and Business Objectives (HL), Market Power: Perfect Competition, Monopoly, Oligopoly, and Monopolistic Competition (HL), Asymmetric Information and the Market's Inability to Achieve Equity (HL), and explain what stays invariant when the surface form changes.
Turn each error into a repair check
After every attempt, audit the response for shifting both curves when only one determinant changes; mixing percentage-change conventions in an elasticity calculation; treating a price change by itself as proof of improved welfare. Then redo only the first step that made the reasoning diverge, keeping units, direction, and model conditions visible.
Confirm current course details in the official IB subject guide / subject brief for the 2027 administration.