Saturday, July 10, 2021

IB Economics New Syllabus Paper 3 (micro calculations)


Focus on micro P3 calculation topics (new IB Economics syllabus)

The new IB Economics syllabus has changed quite significantly concerning Paper 3.  In terms of microeconomics related calculations, there are significantly fewer.  No need to bother anymore with linear demand and supply functions (a good development IMO, since candidates taking any IB math level know how to fool around with linear functions and many of the related calculations in past paper 3 questions could often be solved by inspection - no need even for a simple calculator); no need to fool around with fixed and variable costs and their averages (which again I think proved of little value); and, focusing on micro questions only, no need to know how to calculate MP, AP and TP from tables (data) or from diagrams.  IB Economics candidates now need to know what marginal whatever and average whatever are (HL only), and this is achieved in the new syllabus from requiring them to understand how to play (make calculations) only with MC, AC, MR, AR and also TR (from data tables). 

The new IB economics syllabus includes the following (micro related) calculations:

Calculation (HL only): consumer surplus and producer surplus from a diagram

Calculation: PED, change in price, quantity demanded or total revenue from data provided

Calculation: YED, change in income, quantity demanded from data provided

Calculation: PES, change in price or quantity supplied from data provided

Calculation (HL only): the effects on markets and stakeholders of:

• price ceilings (maximum prices) and price floors (minimum prices)

• indirect taxes and subsidies.

Calculation (HL only): welfare loss from a diagram

Calculation (HL only): profit, MC, MR, AC, AR from data

I will try to upload here some examples for these topics, taken mostly from my OUP Economics Skills and Practice volume.


To me, the trickiest point perhaps that (HL) IB economics candidates should have in mind relates to indirect taxation.  It is very simple, but it differs a bit from the treatment in the old syllabus.  The new economics syllabus is not explicit about this (correct) twist but if one checks out the specimen paper 3 provided to all teachers (and thus to all students) you’ll see what I mean and why all HL IB economics candidates must have this in mind {see specimen question 2a(ii)}.

Assume I went out to buy myself a shirt.  I come back home and my wife asks me how much did I pay.  I reply that I paid 93 euros.  The tax rate (VAT) in Greece is (unfortunately) 24% on most items. (a GST or sales tax in other countries)

The questions are:

(a) how much was the tax paid (in euros)

(b) what was the price of the shirt I bought net of tax (i.e. before the VAT/sales tax was applied).

We must realize that the 93 euros I paid included the tax.  So how do we go about answering the above questions?

First some notation. Let:

* P(wt) be the price paid (say, for the shirt) with the tax 

* t be the tax rate; in this case, say 24%

* Po be the price (of the shirt) net of tax i.e., before the 24% tax was applied

Then it should be that:

P(wt) = Po + tPo (i.e., the net of tax price plus the amount of the tax paid on the item)

P(wt) = Po / (1+t)

So Po = P(wt) / (1+t)

Using our figures:

Po = 93/1.24 So Po = 75 euros (this is the net of tax price of the shirt on which the 24% sales tax was applied)

And thus, the tax I paid on the shirt I bought was P(wt) – Po or, 93 – 75 = 18 euros

(or equivalently, tPo= 0.24*75 = 18 euros)

I will try to post on a regular basis not only articles on issues that may be of interest to IB Economics students but also questions that I will construct, mostly P3 questions and P2 questions that may help.  I’ll also try to provide some insights on Paper1, part(b), questions, focusing mostly on the role of investigations that IB economics candidates should now regularly undertake in their classes to be able to effectively use real world examples (note the plural and the verb ‘use’ – not list or mention) in their responses.


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