Paper 1: extended response

Choose and plan a Paper 1 question, write a part (a) that explains theory with a diagram and a part (b) that evaluates with real-world examples, and avoid the weaknesses that cap marks.

IB Economics
Exam skills
SL and HL

21 min readLast reviewed 14 Oct 2026

Paper 1 is the extended response paper, taken by both SL and HL students. It tests whether you can explain economic theory in depth, use a diagram as part of that explanation, and then build a balanced argument supported by real-world examples. It has no calculations and no data to work from: everything comes from your own knowledge.

This makes Paper 1 the most predictable paper to prepare for. The questions change, but the structure, the way it is marked and the skills it rewards do not. An answer built to the structure set out here can reach the top markband on any question.

How the paper is built

You answer one question from a choice of three. The three questions usually come one from each of the microeconomics, macroeconomics and global economy units, and Unit 1 ideas can appear inside any of them. At SL the questions avoid HL-only material; at HL they may use it. Each question has two parts, and part (b) usually builds on the theory of part (a).

	Part (a)	Part (b)
Marks	10	15
What it tests	Knowledge, application and analysis, diagrams (AO1, AO2, AO4)	All of (a), plus synthesis and evaluation (AO3)
Typical command terms	Explain, distinguish, analyse; often “Using an appropriate diagram, explain…”	Evaluate, discuss, to what extent, examine; always “Using real-world examples…”
Diagram	Expected wherever one fits; often required	Expected wherever one fits; a new diagram or a new use of the (a) diagram
Real-world examples	Not required	Required for the top bands
Evaluation	Not rewarded	Central: balanced and with a judgment

How part (a) is marked

Both parts are marked with a markscheme specific to the question, which lists the theory and diagrams expected, and with markbands, which describe the quality of the answer as a whole. Part (a) has five bands (1–2, 3–4, 5–6, 7–8, 9–10). The examiner places the answer in the band that best fits it, then chooses the mark within the band.

The bands are described along four strands. Moving up a band means moving along each of them, so it is worth knowing what the top of each strand looks like.

Strand	A weak answer (1–4)	A strong answer (9–10)
Understanding the question	Writes about the topic in general, not the specific question	Addresses exactly what was asked, all of it
Theory	States or describes theory, some of it irrelevant	Explains relevant theory fully, with each step of the reasoning
Terminology	Few relevant terms, or terms used loosely	Relevant terms used appropriately throughout
Diagram	Missing, wrong, or drawn but not mentioned	Correct, fully labelled and fully explained in the text

The diagram strand is the one most often decided by small details. A correct diagram that the writing never refers to counts only as “included”, which holds the answer below the top band. Referring to it by its labels (“the shift from S to S + tax raises the price from Pe to Pc”) turns it into a fully explained diagram.

How part (b) is marked

Part (b) has five bands (1–3, 4–6, 7–9, 10–12, 13–15). It uses the same four strands as part (a) and adds two more: synthesis and evaluation, and the use of real-world examples.

Strand	A middle answer (7–9)	A top answer (13–15)
Understanding, theory, terms, diagrams	Theory partly explained; diagram included and partly explained	Theory fully explained; diagram fully explained and linked to the argument
Synthesis and evaluation	Appropriate but one-sided: lacks balance	Effective and balanced: weighs both sides and reaches a supported judgment
Real-world examples	A relevant example named or partly developed	Examples fully developed in context and actually supporting the argument

Two strands separate a 9 from a 13. The first is balance: the answer must weigh arguments on more than one side and reach a judgment, not list advantages and disadvantages. The second is the depth of the examples: a named country is not enough; the example must be developed (what happened, when, with figures where possible) and used to support a point in the argument.

Choosing a question and planning

Five minutes of reading time come before the paper starts, and the first minutes of writing time are best spent on choice and planning. Read all three questions in full, both parts, before choosing. The (b) part carries more marks, so the best choice is usually the question whose (b) you can answer best, with a diagram and a developed example you know well.

Read both parts of all three questions. Underline the command terms and the key terms in each.
Check part (b) first. Can you think of a relevant diagram, two sides of an argument, and a real-world example you can develop with dates and figures?
Check part (a). Can you define its key terms and draw the diagram it needs, correctly labelled, from memory?
Choose and do not change. Switching questions after writing half an answer almost always costs more than it gains.
Plan both parts in a few lines each: the terms to define, the diagram(s), the order of paragraphs, and for (b) the example and the judgment.

Timeline bar of 75 minutes for Paper 1: choose and plan 7 minutes, part (a) 25 minutes, plan (b) 5 minutes, part (b) 35 minutes, check 3 minutes. — Part (b) is worth 1.5 times part (a), so it gets more time; the short planning breaks keep each answer focused on its question.

Time spent roughly in proportion to marks is a safe guide: about 25 minutes for (a) and about 35–40 for (b), with a few minutes to plan each. The most common timing problem is spending too long on (a), which is easier to write, and then rushing (b), which is worth more.

Writing part (a)

A part (a) answer is a focused explanation of theory. A reliable structure has four parts, in this order.

Section	What it contains	Length
1. Definitions	Precise definitions of the two or three key terms in the question	2–3 sentences
2. Diagram	A fully labelled diagram showing the mechanism the question is about	About half a page
3. Explanation	The mechanism step by step, referring to the diagram by its labels, applied to the context in the question	2–3 paragraphs
4. Link back	One or two sentences answering the question directly	1–2 sentences

“Explain two…” questions need two developed points of similar depth, each with its own paragraph; a third point earns nothing extra. “Distinguish between…” questions need both terms defined and then the differences stated directly, usually with a diagram for each or one diagram showing both.

EconplusDal on the 10-mark part (a): defining terms, drawing the diagram and explaining it within the time available.

Model answer: part (a)

The model answers that follow use one Paper 1 question. The (a) part is on the theory of a negative externality; the (b) part asks for an evaluation of carbon taxes, which builds directly on it.

Question 1 (a) [10 marks]: Using an appropriate diagram, explain why the use of fossil fuels to generate electricity leads to market failure.

Show the model answer and commentary

Model answer.

Market failure occurs when the free market fails to allocate resources efficiently, so the quantity produced is not the socially optimal quantity, where marginal social benefit (MSB) equals marginal social cost (MSC). One cause of market failure is a negative externality of production: a cost imposed on third parties by the production of a good, which the producer does not pay.

When power stations burn coal, oil or gas, they emit carbon dioxide and other pollutants. The carbon dioxide adds to climate change, whose costs (damage from floods, droughts and heat, lower crop yields) fall on people around the world and on future generations. Local air pollution also harms the health of people living near the power stations. None of these costs is paid by the generator or by its customers.

Because the generator ignores the external cost, output is Qm rather than Qopt; the hatched triangle is the welfare loss from over-production.

In the diagram, the supply curve S = MPC shows the marginal private cost of generating electricity: fuel, labour and capital. The demand curve shows the marginal private benefit to consumers; as there are no externalities in consumption, D = MPB = MSB. The market reaches equilibrium where D = MPC, at quantity Qm and price Pm.

The marginal social cost is the private cost plus the external cost of the emissions, so the MSC curve lies above MPC by the external cost at every level of output. The socially optimal quantity is Qopt, where MSB = MSC, at price Popt. The market therefore over-produces electricity from fossil fuels by Qm − Qopt, and its price Pm is too low, because it does not include the external cost.

For every unit between Qopt and Qm, the marginal social cost is greater than the marginal social benefit, so society would be better off if these units were not produced. The hatched triangle between MSC and MSB from Qopt to Qm is the welfare loss. Resources are over-allocated to fossil-fuel electricity, so there is allocative inefficiency: the market has failed.

In short, because generators do not pay for the damage their emissions cause, the market price of fossil-fuel electricity is too low and too much of it is produced, which is market failure.

Examiner-style commentary. This answer would be placed in the top band (9–10). It defines market failure and the externality precisely, applies the theory to the specific context of electricity and emissions, and explains each step of the mechanism. The diagram is correct, fully labelled in context, and every label is used in the text: MPC, MSC, MSB, Qm, Qopt, Pm, Popt and the welfare loss. It does not evaluate (no discussion of policies), which (a) does not reward. The last paragraph links back to the question in one sentence.

A second, shorter example shows how the same structure handles a different kind of (a) question, one built on elasticity rather than market failure.

(a) [10 marks]: Using an appropriate diagram, explain how the price elasticity of demand for a good affects the burden of an indirect tax on consumers.

Show an answer plan

Answer plan.

Definitions: an indirect tax (a tax on spending, paid to the government by producers, which shifts supply up by the tax per unit for a specific tax); price elasticity of demand (the responsiveness of quantity demanded to a change in price, ceteris paribus).
Diagram: two panels with the same specific tax, one with price-inelastic demand (steep) and one with price-elastic demand (flat), each showing Pc, Pe, Pp, Q₁, Qe and the shares of the tax revenue paid by consumers (C) and producers (P).
Explanation, inelastic demand: when demand is inelastic, consumers continue to buy much the same quantity as the price rises, so producers can pass most of the tax on: Pc rises close to Pe + tax, and area C is much larger than area P. The tax incidence falls mainly on consumers; quantity falls only a little.
Explanation, elastic demand: when demand is elastic, a higher price causes a large fall in quantity demanded, so producers absorb most of the tax: Pc rises only a little, Pp falls a lot, and area P is the larger share.
Link back: the more price inelastic the demand, the greater the share of the tax paid by consumers (and the more revenue the government raises, because quantity falls less). This is why governments tax goods such as fuel and tobacco, whose demand is inelastic.

With the same tax, consumers pay most of it (area C) when demand is price inelastic, and producers pay most (area P) when demand is price elastic.

Writing part (b)

Part (b) is an evaluative essay. It reuses the theory of (a) but must go further: a policy or a consequence is assessed from more than one side, with real-world evidence, and the answer ends with a judgment. A clear structure keeps the argument balanced.

Section	What it contains
1. Introduction	Definitions of the key terms in the (b) question, and a one-sentence statement of the line of argument
2. Theory	How the policy or factor works, with a diagram (a new diagram, or the (a) diagram extended with the policy); briefer than in (a) if (a) has already explained the basics
3. Evaluation, point by point	Three or four evaluative points, each in its own paragraph: the point, the reasoning, the real-world evidence, and what it means for the question
4. Conclusion	A judgment that answers the question directly and says what it depends on

Each evaluative paragraph should do one job. A helpful pattern is point → explain → example → weigh: state the argument, explain the economics behind it, support it with a developed example, then say how strong the argument is or what it depends on. The last step is what turns a paragraph from analysis into evaluation.

The judgment should not appear from nowhere in the conclusion. If the paragraphs have weighed each point as they went, the conclusion can draw them together: which arguments are strongest, and under what conditions the answer would change. “It depends” is a good conclusion only when the answer says what it depends on and which way it most likely goes.

EconplusDal on the 15-mark evaluation question: building balanced evaluation, using examples and reaching a judgment.

Model answer: part (b)

Question 1 (b) [15 marks]: Using real-world examples, evaluate the use of carbon taxes to reduce greenhouse gas emissions.

Show the model answer and commentary

Model answer.

A carbon tax is an indirect tax on fossil fuels set according to the carbon dioxide released when they are burned. It is a form of Pigouvian tax: a tax designed to make producers and consumers pay the external cost of their activity. Carbon taxes can reduce emissions effectively, but their success depends on the rate set, on how much of the economy they cover and on how the effects on low-income households are handled.

The tax shifts supply from S = MPC to MPC + carbon tax, cutting output from Qm to Q₁; set below the full external cost, it leaves a smaller welfare loss between Q₁ and Qopt.

In the diagram, a tax on each unit of electricity generated from fossil fuels shifts the supply curve up from S = MPC to MPC + carbon tax. Generators now pay part of the external cost of their emissions, so the price rises from Pm to P₁ and the quantity falls from Qm to Q₁, closer to the social optimum Qopt. If the tax equalled the full external cost at Qopt, supply would shift to MSC and the welfare loss would disappear. Because the tax shown is smaller than the external cost, a smaller welfare loss remains between Q₁ and Qopt.

The main strength of a carbon tax is that it uses the price mechanism. Every firm and household facing the tax has an incentive to cut emissions where it is cheapest for them to do so, by switching fuel, saving energy or investing in cleaner technology, so a given cut in emissions is achieved at low cost. Sweden introduced its carbon tax in 1991 at SEK 250 per tonne of CO₂ and has raised it gradually to SEK 1,510 (about €134) in 2025, one of the highest rates in the world.

Between 1990 and 2018 Sweden’s greenhouse gas emissions fell by 27%, while real GDP per person rose by more than 50% between 1990 and 2019. A study of Swedish transport fuel found that emissions were almost 11% lower than in a comparable group of countries without the tax. This suggests carbon taxes can cut emissions without stopping growth.

However, the size of the effect depends on the price elasticity of demand. Demand for energy is price inelastic in the short run, because households and firms cannot quickly change their heating systems, vehicles or machines. A carbon tax therefore cuts emissions only a little at first, and the fall grows over time as capital is replaced. Sweden’s gradual increases over three decades allowed this adjustment; a country that needs fast cuts may find a tax alone too slow.

A second limitation is that the right rate is hard to know. The external cost of a tonne of CO₂ is uncertain, because it depends on future climate damage, so a tax may be set too low, as in the diagram, leaving a welfare loss. Tradable permits, as in the EU Emissions Trading System, fix the quantity of emissions directly and let the price adjust, which gives more certainty about the environmental result but less certainty about the cost to firms. Sweden exempts firms covered by the EU system from its carbon tax, which shows that the two tools are often used together.

Carbon taxes also raise questions of equity. Low-income households spend a larger share of their income on energy, so a carbon tax is regressive. Sweden has paired its increases with cuts in other taxes to keep the overall tax burden unchanged, which reduces this problem and helps make the policy politically acceptable. Where revenue is not returned, public opposition can force governments to abandon the tax. There is also the risk of carbon leakage: firms in internationally traded industries may move production to countries without a carbon price, so emissions move rather than fall.

On balance, carbon taxes are an effective and low-cost way to reduce emissions over the long run, as Sweden’s experience shows, because they make polluters pay part of the external cost and use market incentives. Their effectiveness is greatest when the rate rises steadily and predictably, when revenue is used to offset the burden on low-income households, and when they are combined with permits or regulation for sectors where a price alone works too slowly. A carbon tax is therefore best seen as the core of a climate policy rather than the whole of it.

Examiner-style commentary. This answer would be placed in the top band (13–15). The key terms are defined; the diagram is correct, labelled in context and explained, including the remaining welfare loss, which links the theory to an evaluative point. The evaluation is balanced: one strength developed with evidence, then four limitations (PED and time, uncertainty about the external cost, equity, carbon leakage), each weighed rather than listed, with tradable permits used as an alternative. The Sweden example is developed in depth (dates, rates, outcomes) and used as evidence for and against the argument, not dropped in. The conclusion gives a clear judgment and says what it depends on.

To be even stronger, a second short example from another region would show that the judgment holds in a different context.

Sources: IEA Policies Database, “Sweden carbon tax” (2026); Tax Foundation, “Sweden’s Carbon Tax” (updated November 2023); J. Andersson, American Economic Journal: Economic Policy (2019).

Common weaknesses and how to fix them

Most lost marks in Paper 1 come from a small number of habits. Each one caps the answer at a lower band, whatever the quality of the rest.

Weakness	Why it costs marks	The fix
Writing everything known about the topic	The first strand of every markband is answering the specific question	Underline the command term and key terms; check each paragraph against them
Evaluating in (a)	No AO3 marks in (a); time lost for (b)	Theory, diagram, explanation only in (a)
Diagram not referred to	Counts as “included”, not “explained”	Use every label of the diagram in the text
Repeating the (a) diagram in (b) without new analysis	Adds nothing new to the argument	Draw a new diagram (the policy, a different market) or extend the old one
A generic or undeveloped example	Caps the examples strand in the middle bands	Name, date and quantify the example; say what it shows
A list of advantages and disadvantages	One-sided or unweighed evaluation	Weigh each point: how big, for whom, when, compared with what
No conclusion, or a conclusion that repeats the essay	No judgment reached	Answer the question directly and say what the answer depends on
Rushing (b)	The 15-mark part gets the least time	Plan both parts first; move on from (a) at about 25 minutes

A related habit is preparing whole essays in advance. Prepared material helps only when it is reshaped to the exact question set.

Practice questions

These questions are written in the style of Paper 1. Each answer plan shows the theory, diagrams, examples and evaluation a strong answer would use.

(a) [10 marks]: Using an AD/AS diagram, explain how a fall in business confidence could cause cyclical unemployment.
(b) [15 marks]: Using real-world examples, evaluate the effectiveness of monetary policy in reducing unemployment.

Show the answer plans

(a) plan. Define cyclical (demand-deficient) unemployment and aggregate demand. Diagram: AD shifts left from AD₁ to AD₂ along SRAS, real GDP falls below Yf (a deflationary gap). Explain: lower confidence cuts planned investment, a component of AD; firms produce less and need fewer workers; unemployment rises because demand for labour is derived from demand for output. Link back.

(b) plan. Define monetary policy. Diagram: expansionary monetary policy shifts AD right, closing the gap. Evaluate: speed and flexibility of interest rate decisions (strength); time lags; weak transmission when confidence is low or interest rates are already near zero; the risk of inflation and asset bubbles; no effect on structural unemployment. Example: central banks cutting rates to near zero and using quantitative easing in 2020, and how unemployment recovered afterwards. Judgment: effective for cyclical unemployment when interest rates have room to fall and confidence responds; weak for structural unemployment and in a deep slump, where fiscal policy is needed too.

(a) [10 marks]: Using an appropriate diagram, explain the effect of a tariff on domestic producers and the government.
(b) [15 marks]: Using real-world examples, discuss the arguments for protecting domestic industries from foreign competition.

Show the answer plans

(a) plan. Define a tariff and the world price. Tariff diagram with Ddom, Sdom, Pw and Pw + tariff. Explain: the domestic price rises by the tariff; domestic production rises from Q₁ to Q₂, so producer revenue and surplus rise; imports fall; government revenue is the tariff per unit times the quantity imported (area c). Link back.

(b) plan. Arguments for: infant industries, protecting jobs in the short run, national security, anti-dumping, raising government revenue in low-income countries. Arguments against: higher prices for consumers, welfare loss, inefficiency of protected firms, retaliation. Examples: a recent tariff dispute between major economies, with the industries and rates involved; a successful and an unsuccessful infant-industry case. Judgment: protection can be justified for a limited time in specific cases (security, genuine infant industries with a plan to remove it), but as a general policy its costs to consumers and the risk of retaliation usually outweigh the gains.

Summary

Paper 1 is one question from a choice of three: part (a) [10] explains theory with a diagram; part (b) [15] evaluates with real-world examples.
Choose the question with the part (b) you can answer best, plan both parts first, and give (b) more time than (a).
Part (a): define, draw a fully labelled diagram, explain the mechanism step by step using its labels, link back. No evaluation.
Part (b): define, explain the theory with a diagram, then three or four evaluative paragraphs (point, explain, example, weigh), and a clear judgment.
Examples must be named, dated, quantified and used as evidence; a list of “however” points is not evaluation.
The top bands need precise terms throughout, diagrams referred to in the text, balance and a judgment.

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