1.1 What is economics? questions for IB Economics

Using a production possibilities curve (PPC), explain the concepts of scarcity, choice and opportunity cost.

Using real-world examples, evaluate the view that the price mechanism is the best way to allocate scarce resources.

Define the term opportunity cost indicated in bold in the text (Text A, paragraph 1).

Using information from Table 1, calculate the opportunity cost of one tonne of bananas when Pelaro moves from combination C to combination D.

Using information from Table 1, calculate the opportunity cost of one tonne of bananas when Pelaro moves from combination E to combination F.

Using your answers to (b)(i) and (b)(ii), state whether Pelaro faces constant or increasing opportunity cost in producing bananas.

Using a production possibilities curve (PPC) diagram, explain the position of Pelaro's economy in 2025 (Text A, paragraph 3).

Using Table 1, calculate Marlund's rate of economic growth in 2024.

Using Table 1, calculate Marlund's real GDP per capita in 2023 and in 2024.

Using your answers to part (a)(ii), calculate the percentage change in Marlund's real GDP per capita in 2024, and state whether the government met its target.

Sketch a production possibilities curve (PPC) diagram to show long-term economic growth.

Outline one reason why an increase in real GDP per capita may not lead to an improvement in living standards in Marlund.

Distinguish between a free market economy and a planned economy in the way each answers the basic economic questions.

Using real-world examples, discuss the view that government intervention in markets does more harm than good.

Define the term capital indicated in bold in the text (Text A, paragraph 1).

Using information from Text A, paragraph 2, calculate the percentage change in Velmaris's real GDP between 2023 and 2024.

Sketch a production possibilities curve (PPC) diagram to show the effect of the destruction of capital on Velmaris's production possibilities (Text A, paragraph 1).

Using a PPC diagram, explain how hiring workers who lost their jobs to rebuild roads and power lines could lead to actual growth in Velmaris (Text A, paragraphs 2 and 3).

Using an AD/AS diagram, explain the likely effect of the earthquake on Velmaris's real GDP (Text A, paragraphs 1 and 2).

Using Table 1, calculate the percentage change in Tirvana's real GDP between 2022 and 2024.

Using Table 1, calculate Tirvana's real GDP per capita in 2024.

Using Table 1, calculate the carbon dioxide emissions per TRV of real GDP (in kg) in 2022 and in 2024.

Using your answers to parts (a)(i) and (a)(iii), outline what happened to the environmental impact of Tirvana's growth between 2022 and 2024.

Sketch a production possibilities curve (PPC) diagram to show the opportunity cost of increasing manufacturing output in terms of environmental quality.

The government is considering a carbon tax on coal-fired power stations equal to the estimated external cost of their emissions.

Using an externalities diagram and the information provided, explain how this carbon tax could achieve the socially optimal level of output in the electricity market.

Between 2015 and 2024, the share of Tirvana's population living in absolute poverty fell from 31 % to 17 %, and life expectancy rose from 67.8 to 70.1 years. However, the health ministry estimates that air pollution reduces average life expectancy in Tirvana's capital by about two years.

Using the information provided, explain two consequences of economic growth for living standards in Tirvana.

Distinguish between actual economic growth and an increase in potential output.

The following information is available to the government of Tirvana:

• Tirvana has committed to cutting total carbon dioxide emissions by 20 % from their 2024 level by 2035, while targeting real GDP growth of at least 5 % a year.

• The cost of electricity from new solar farms in Tirvana is now 15 % lower than from new coal-fired power stations, but solar farms require large initial investment and the electricity grid needs upgrading.

• A carbon tax would raise electricity prices by an estimated 12 % in the first year; garment exporters, which employ 4 million people, say this would make them uncompetitive.

• The government spends 1.6 % of GDP on subsidies that reduce the price of coal for power stations.

• Foreign development banks have offered low-interest loans for renewable energy projects.

• Tirvana's two largest export markets will introduce taxes on carbon-intensive imports from 2027.

Using the information provided and your knowledge of economics, recommend a policy the government of Tirvana could introduce to reduce carbon dioxide emissions while maintaining high economic growth.