![]() ![]() However, the shortage means consumers will have to queue for the good or service meaning time is being wasted. It is not clear if consumers gain or lose from the introduction of the price ceiling looking at the diagram. After the price ceiling, it is the area (a + c). Consumer surplus before the price ceiling was the area ( a + b). (diagram fully explained)Ĭonsumer surplus is the difference between what a consumer is willing to pay and actually pays. The lower price causes an expansion in demand and a contraction in supply. ![]() The introduction of the price ceiling (pm) creates a shortage of Qd – Qs. (analysis)īefore the price ceiling the equilibrium price was P1. Marginal cost the extra cost of producing one extra unit of a good. Marginal benefit the benefit a consumer receives from consuming one extra unit of a good or service. Or in the other words the marginal benefit does not equal the marginal cost. Allocative efficiency occurs when the quantity supplied does not equal the quantity demanded. However, a price ceiling leads to allocative inefficiency. This is usually set on goods that are seen as necessities for example rent and food. This is a lot more challenging but is still very achievable if the structure is followed:Įxplain the consequences of introducing a price ceiling on stakeholders (15 marks).Ī price ceiling or maximum price is a legal limit set by the government on the price a producer can place on a good and service. Multi-policy : Evaluate the view that the most effective way in which the government can encourage the consumption of merit goods is through direct Provision (15 marks). Pros and cons : Explain the consequences of introducing a price ceiling on stakeholders (15 marks). The 15 marks question will always be one of two styles: Consumers aim to always seek to maximise consumer surplus or in other words want to pay the lowest price possible. Total consumer surplus is the sum of all individual consumer surpluses. Total consumer surplus can be calculated by finding the area of the yellow triangle. This means all the consumers above $3 are willing to pay a higher price and therefore receive a benefit from paying for the good. Graphically the consumer surplus is represented by the area above the equilibrium price ($3) and below the demand curve (D). For example, if a consumer is willing to pay $5 for a pen but only pays $2, his consumer surplus would be $3. This is the structure to follow to achieve high marks.Ĭonsumer surplus is the difference between what the consumer is willing to pay and actually pays. The question usually specifies this but if it does not, assume two analysis points are required. The 10-mark question will expect you to make two analysis points. Explain the concepts of consumer surplus and producer surplus (10 marks) The 10-mark question will always follow the same structure. I will outline what is expected to achieve excellence (Grade 7) in questions like this. The challenge for students in these types of questions is to structure their answers correctly, something many students find difficult. Part (a) is 10 marks while part (b) is 15 marks. Each question has two parts: part (a) and part (b). Students are presented with three questions from which they choose one question. Paper 1 in IB Economics is an options paper. Hugh Pollock provides tips on how to approach long answer questions in the IB Economics Paper 1 exam and increase your chances of success. In this article, BISP IB Economics Teacher Mr. However, with proper preparation and a clear strategy, it is possible to succeed on these questions and earn a high score on your IB Economics paper. ![]() These questions often require a deeper understanding of the material and the ability to apply economic concepts to real-world scenarios. Long answer questions can be intimidating for students preparing for their International Baccalaureate (IB) Economics exams. Written by BISP IB Economics Teacher Hugh Pollock
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