Microeconomics: notes and practice questions
Demand, supply, equilibrium, elasticity, government intervention and the four kinds of market failure. Diagram-dense: almost every subtopic requires at least one, and the HL-only 2.11 alone requires nine. The hard parts at SL are the externality diagrams, where students confuse production with consumption externalities and put the divergence on the wrong curve, and the tax incidence work, which needs elasticity and surplus at the same time. At HL the hard part is 2.11, which is effectively a first-year university microeconomics course compressed into a subtopic and which demands cost and revenue curves that appear nowhere else in the syllabus. Examined everywhere: it is the most common source of Paper 2 diagram parts, a frequent Paper 1 pairing, and the bulk of Paper 3 question one in May 2025.
Subtopics
- Practice questionsDemand
This topic explains the relationship between price and quantity demanded, the factors influencing demand, and how these are represented graphically. The law of demand states that, ceteris paribus, there is an inverse relationship between price and quantity demanded.
- Practice questionsSupply
This topic covers the concept of supply, its determinants, and how it is represented graphically. The law of supply states that as price increases, the quantity supplied increases, ceteris paribus.
- Practice questionsCompetitive market equilibrium
This topic explains how demand and supply interact to determine equilibrium in competitive markets. Market equilibrium occurs where quantity demanded equals quantity supplied.
- Practice questionsCritique of the maximizing behaviour of consumers and producers
This topic explores how real-world consumer and producer behaviour may deviate from the traditional economic assumption of rationality. Traditional economic theory assumes consumers maximize utility and producers maximize profit with perfect information.
- Practice questionsElasticity of demand
This topic covers the responsiveness of quantity demanded to changes in price and income. Price elasticity of demand (PED) measures how quantity demanded changes with price: .
- Practice questionsElasticity of supply
This topic covers the concept, calculation, and determinants of price elasticity of supply (PES). PES measures the responsiveness of quantity supplied to a change in price.
- Practice questionsRole of government in microeconomics
This topic examines the reasons for government intervention in microeconomic markets and the main forms of such intervention. Governments intervene to earn revenue, support firms or households, influence production or consumption, correct market failure, and promote equity.
- Practice questionsMarket failure: externalities and common pool or common access resources
This topic covers market failures arising from externalities and common pool or common access resources, and government responses. Allocative efficiency is achieved when marginal social benefit (MSB) equals marginal social cost (MSC).
- Practice questionsMarket failure: public goods
This topic covers the characteristics of public goods and the market failure associated with them, along with government responses. Public goods are non-rivalrous, meaning consumption by one person does not reduce availability for others.
- Practice questionsMarket failure: asymmetric informationHL only
This topic examines asymmetric information as a market failure where one party in a transaction has more or better information than the other. Asymmetric information leads to inefficient market outcomes.
- Practice questionsMarket failure: market powerHL only
This topic examines market power as a cause of market failure, focusing on different market structures. Market power refers to a firm's ability to influence the market price of its product.
- Practice questionsThe market’s inability to achieve equityHL only
This topic examines how free markets can lead to an unequal distribution of income and wealth. Equity refers to the concept of fairness, distinct from equality.
