Paper 1 — Extended Essay
What Paper 1 Tests
- Part (a): Explain an economic concept clearly using theory + diagram [10 marks]
- Part (b): Evaluate a policy or economic claim using balanced argument + RWEs [15 marks]
- Calculator NOT allowed
- Real-world examples (RWEs) are mandatory for band 4–5 in part (b)
- All 4 units can be tested — no safe unit to skip
How Marks Are Awarded (Part b)
- Band 5 (13–15): Balanced, nuanced argument with strong RWEs and a justified conclusion
- Band 4 (10–12): Good analysis but limited evaluation or weak conclusion
- Band 3 (7–9): Mostly description with some analysis
- Band 2 (4–6): Limited relevant content
- Band 1 (1–3): Minimal economic understanding
Essay Theme Frequency — May 2022–2025
| IB ECONOMICS HL PAPER 1 — ESSAY THEME FREQUENCY MATRIX | May 2022–2025 | All Units | |||||||||||
| Questions can be drawn from any unit. Part (a) = explain [10 marks] | Part (b) = evaluate [15 marks] | Choose 1 of 3 questions | |||||||||||
| # | Unit | Essay Theme / Topic | M22 | M23 | M24 | M25 | Freq | Part (a) Likely | Part (b) Likely | HL? | May 2026 Prediction |
|---|---|---|---|---|---|---|---|---|---|---|---|
| UNIT 2: MICROECONOMICS — most tested unit in Paper 1 | |||||||||||
| 1 | Micro | Market failure — externalities: explain negative externality + evaluate government policy responses | ✔ | ✔ | ✔ | ✔ | 4 | Explain neg/pos externality with diagram | Evaluate: carbon tax vs cap-and-trade vs regulation | No | ⭐⭐⭐⭐⭐ CERTAIN |
| 2 | Micro | Price elasticity of demand — explain PED concept + evaluate implications for indirect taxation | ✔ | ✔ | — | ✔ | 3 | Explain PED with formula and diagram | Evaluate: should government tax inelastic goods? | No | ⭐⭐⭐⭐⭐ |
| 3 | Micro | Market structures — explain monopoly vs perfect competition + evaluate welfare effects | ✔ | — | ✔ | ✔ | 3 | Explain monopoly diagram: profit, DWL | Evaluate: is monopoly always harmful to society? | HL | ⭐⭐⭐⭐⭐ |
| 4 | Micro | Government intervention — explain subsidy or price controls + evaluate effectiveness | — | ✔ | ✔ | — | 2 | Explain subsidy diagram / price ceiling | Evaluate: do subsidies achieve their objectives? | No | ⭐⭐⭐⭐ |
| 5 | Micro | Behavioural economics — explain bounded rationality + evaluate nudge theory vs traditional policy | — | ✔ | — | — | 1 | Explain cognitive biases with examples | Evaluate: nudge theory vs taxes/regulation | HL | ⭐⭐⭐ SURPRISE |
| UNIT 3: MACROECONOMICS | |||||||||||
| 6 | Macro | Fiscal policy — explain expansionary fiscal policy + evaluate effectiveness in achieving growth | ✔ | ✔ | ✔ | ✔ | 4 | Explain AD/AS shift from fiscal expansion | Evaluate: crowding out, time lags, national debt, RWE | No | ⭐⭐⭐⭐⭐ CERTAIN |
| 7 | Macro | Monetary policy — explain how central bank controls inflation + evaluate limitations | ✔ | — | ✔ | ✔ | 3 | Explain interest rate mechanism + AD shift | Evaluate: time lags, liquidity trap, inflation targeting | No | ⭐⭐⭐⭐ |
| 8 | Macro | Unemployment — explain types + evaluate supply-side policies to reduce structural unemployment | — | ✔ | ✔ | — | 2 | Explain cyclical vs structural unemployment | Evaluate: education/training, labour market reform, RWE | No | ⭐⭐⭐⭐ |
| 9 | Macro | Income inequality — explain Lorenz curve/Gini + evaluate policies to reduce inequality | ✔ | — | ✔ | ✔ | 3 | Draw Lorenz curve, calculate/interpret Gini | Evaluate: progressive tax, transfers, minimum wage | No | ⭐⭐⭐⭐ |
| 10 | Macro | Economic growth — explain actual vs potential growth + evaluate supply-side policy | — | ✔ | — | ✔ | 2 | Explain PPC shift / LRAS shift for potential growth | Evaluate: privatisation, deregulation, infrastructure | No | ⭐⭐⭐ |
| UNIT 4: THE GLOBAL ECONOMY | |||||||||||
| 11 | Global | Free trade vs protectionism — explain comparative advantage + evaluate case for protectionism | ✔ | ✔ | ✔ | ✔ | 4 | Explain comparative advantage with numerical example | Evaluate: infant industry, retaliation, employment vs efficiency | No | ⭐⭐⭐⭐⭐ CERTAIN |
| 12 | Global | Exchange rates — explain impact of depreciation + evaluate effect on trade balance | ✔ | — | ✔ | ✔ | 3 | Explain depreciation mechanism + effect on X and M | Evaluate: Marshall-Lerner, J-curve, inflation risk | No | ⭐⭐⭐⭐ |
| 13 | Global | Development — explain barriers to economic development + evaluate effectiveness of aid | — | ✔ | ✔ | — | 2 | Explain poverty trap / institutional barriers | Evaluate: tied vs untied aid, dependency, RWE | No | ⭐⭐⭐ |
| 14 | Global | Sustainable development — explain trade-off between growth and sustainability + evaluate policy | — | ✔ | — | ✔ | 2 | Explain SDGs and conflict with growth objectives | Evaluate: carbon pricing, international agreements, RWE | No | ⭐⭐⭐⭐ |
Pre-Planned Essay Frameworks for Top 5 Themes
🌍 Theme 1: Externalities + Government Policy (Part b framework)
- Define the market failure: negative externality → MSC > MPC → overconsumption / overproduction → welfare loss
- Policy 1 — Carbon tax: Pigouvian tax internalises externality. ✔ Raises revenue, corrects price signal. ✗ Hard to set optimal rate, regressive burden.
- Policy 2 — Cap and trade: Sets quantity limit, allows market to find price. ✔ Certainty on emissions quantity. ✗ Price volatility, lobbying.
- Policy 3 — Regulation: Direct standard setting. ✔ Predictable. ✗ Costly to enforce, no incentive to go below limit.
- RWE: EU Emissions Trading Scheme / UK sugar tax / India’s plastic bag ban
- Conclusion: Justify best policy given country context — carbon tax for high-income countries with administrative capacity.
📈 Theme 2: Fiscal Policy Effectiveness (Part b framework)
- Define fiscal policy: Government use of taxation and spending to influence AD. Expansionary = increase G or cut T → AD shifts right.
- Argument FOR effectiveness: Multiplier effect — initial injection multiplied through economy. Targeted at specific sectors. RWE: US CARES Act 2020.
- Argument AGAINST — crowding out (HL): Borrowing raises interest rates → private investment falls → AD increase smaller than expected.
- Argument AGAINST — time lags: Recognition lag + implementation lag + impact lag = policy arrives when recession may have ended.
- Argument AGAINST — national debt: Persistent deficits raise debt/GDP ratio → future austerity. RWE: Greece 2010 debt crisis.
- Conclusion: Most effective in severe downturns (liquidity trap) when monetary policy is ineffective. Less effective in supply-side recessions.
🌐 Theme 3: Free Trade vs Protectionism (Part b framework)
- Case for free trade: Comparative advantage → specialisation → allocative efficiency → lower prices for consumers. RWE: ASEAN free trade gains.
- Argument FOR protectionism 1 — infant industry: Young industries need temporary protection to achieve economies of scale. RWE: South Korea’s steel industry (1960s).
- Argument FOR protectionism 2 — strategic industries: National security, food security justify protection. RWE: EU agricultural subsidies.
- Argument AGAINST protectionism: Higher domestic prices → consumer surplus loss. Retaliation risk. Inefficiency from protecting uncompetitive firms. RWE: US-China trade war tariffs.
- Conclusion: Protectionism rarely optimal in long run but temporary infant industry argument has merit. WTO rules help prevent retaliatory spirals.
Top Real-World Examples to Prepare
- Externalities: EU ETS, UK sugar tax, India plastic bag ban, China coal subsidies
- Inequality: Scandinavia (low Gini), USA vs Germany income distribution
- Fiscal Policy: US CARES Act 2020, UK furlough scheme, India MNREGA
- Trade: US-China tariffs, ASEAN FTA, Brexit trade effects
- Development: Bangladesh microfinance, Rwanda aid, China’s economic growth
- Exchange rates: India rupee depreciation 2022, Japan yen 2023
Common Part (b) Mistakes That Cost Marks
- ❌ One-sided argument — only pros OR only cons = max band 3
- ❌ No real-world examples = max band 3 (cannot reach band 4–5)
- ❌ No conclusion = max band 3
- ❌ Vague conclusion (“it depends”) without specifying conditions
- ❌ Using theory without linking to the specific question context
- ❌ No diagram in part (a) = max 7/10
- ❌ Describing diagram without explaining economic meaning
Paper 2 — Data Response
🔓
Full Paper 2 matrix — complete topic frequency analysis with all 4 units, TZ1 & TZ2 columns, HL flags and May 2026 predictions available in the downloadable Excel file below.
Section A — Microeconomics (Must Know)
- 🔴 Externalities diagram + policy — 100% frequency
- 🔴 AD/AS model + fiscal/monetary policy — 100%
- 🔴 PED calculation + tax incidence — 75%
- 🔴 Indirect tax diagram — 75%
- 🔴 Monopoly + welfare loss (HL) — 63%
- 🔴 Lorenz curve + Gini — 75%
Section B — Global Economy (Must Know)
- 🔴 Exchange rate diagram — 88% frequency
- 🔴 Comparative advantage + trade gains — 75%
- 🔴 Protectionism tariff diagram — 75%
- 🔴 Terms of Trade calculation (HL) — 75%
- 🔴 Balance of payments — 63%
- 🔴 Development strategies evaluate — 63%
Paper 3 — Policy Paper (HL Only)
What Paper 3 Tests
- Quantitative calculations using provided data
- Definitions of economic terms in context
- Explanation of economic concepts using stimulus material
- Drawing diagrams that reflect the scenario
- Part (b): Recommend a specific government policy with justification
- All HL extension topics can be tested
- Questions draw on Micro, Macro AND Global Economy
Part (b) Policy Recommendation Structure
- State the policy clearly — name the specific tool
- Explain the mechanism — how does it work?
- Link to the scenario — use data from the question
- Acknowledge limitations — at least 1–2 drawbacks
- Justify your choice — why this policy over alternatives?
- 10 marks = 5 for policy + mechanism + 5 for evaluation/justification
Paper 3 Quantitative Skills Checklist
- GDP / GNI calculationAdd/subtract components. Expenditure approach: C + I + G + (X–M). Income approach. Be ready to calculate growth rate.Every sitting
- Consumer Price Index (CPI)CPI = (Cost of basket in current year / Cost in base year) × 100. Calculate inflation rate from two CPI values.Every sitting
- Price Elasticity of Demand (PED)PED = % change in Qd / % change in P. Interpret: |PED| > 1 = elastic. Calculate change in total revenue.Very frequent
- Terms of Trade (HL)TOT = (Export price index / Import price index) × 100. Calculate change and interpret improvement vs deterioration.Very frequent
- Current Account BalanceCalculate trade in goods + services + income + transfers. Identify surplus or deficit. Calculate as % of GDP.Very frequent
- Lorenz Curve / Gini CoefficientGini = Area A / (Area A + Area B). Higher Gini = more inequality. Read from table and interpret change over time.Frequent
- Unemployment RateUnemployment rate = (unemployed / labour force) × 100. Distinguish labour force from population. Calculate change.Frequent
- Tax Revenue from Indirect TaxTax revenue = tax per unit × quantity sold. Consumer burden = (Pc – Pe) × Q. Producer burden = (Pe – Pp) × Q.Frequent
- Fiscal MultiplierMultiplier = 1 / (1 – MPC) or 1 / MPS. Calculate change in national income from initial injection. HL extension.Frequent — HL
- Exchange Rate Effects on TradeCalculate new export/import prices after depreciation. Apply Marshall-Lerner: sum of |PED| must exceed 1 for improvement.Frequent — HL
- Deadweight Loss from Tax / MonopolyIdentify the triangle area on the diagram. Describe it as allocative inefficiency — output below socially optimal level.Medium
- Government Budget / National DebtBudget deficit = G – T. Calculate cumulative debt. Debt/GDP ratio. Distinguish deficit (annual) from debt (total stock).Medium
Paper 3 Policy Scenarios — What Gets Asked
| IB ECONOMICS HL PAPER 3 — POLICY SCENARIO FREQUENCY & PREDICTION MATRIX | May 2022–2025 | |||||||
| Part (a) = quantitative + definitions + diagrams [20 marks] | Part (b) = policy recommendation [10 marks] | Both questions compulsory | Calculator allowed | |||||||
| # | Area | Policy Scenario / Context | M22 | M23 | M24 | M25 | May 2026 Prediction |
|---|---|---|---|---|---|---|---|
| MACROECONOMIC POLICY SCENARIOS | |||||||
| P1 | Macro | Country facing rising inflation — recommend monetary or fiscal policy to reduce inflation, with justification | ✔ | ✔ | ✔ | ✔ | ⭐⭐⭐⭐⭐ CERTAIN |
| P2 | Macro | Country with high unemployment — recommend policy mix (demand-side + supply-side) to reduce unemployment | ✔ | — | ✔ | ✔ | ⭐⭐⭐⭐⭐ |
| P3 | Macro | Recession scenario — evaluate expansionary fiscal policy including calculation of multiplier effect | ✔ | ✔ | — | ✔ | ⭐⭐⭐⭐ |
| P4 | Macro | High income inequality — calculate Gini from Lorenz table + recommend redistribution policy | — | ✔ | ✔ | — | ⭐⭐⭐⭐ |
| INTERNATIONAL / GLOBAL ECONOMY POLICY SCENARIOS | |||||||
| P5 | Global | Current account deficit — calculate balance, identify causes, recommend exchange rate or expenditure policy | ✔ | ✔ | ✔ | ✔ | ⭐⭐⭐⭐⭐ CERTAIN |
| P6 | Global | Deteriorating terms of trade — calculate TOT index, explain impact on developing economy, recommend policy | ✔ | — | ✔ | ✔ | ⭐⭐⭐⭐⭐ HL |
| P7 | Global | Currency depreciation — calculate new trade prices, apply Marshall-Lerner, recommend exchange rate policy | ✔ | ✔ | — | ✔ | ⭐⭐⭐⭐ HL |
| P8 | Global | Developing country facing barriers to growth — recommend sustainable development strategy | — | ✔ | ✔ | — | ⭐⭐⭐ |
| MICROECONOMIC POLICY SCENARIOS | |||||||
| P9 | Micro | Negative externality market — calculate welfare loss, recommend optimal Pigouvian tax rate | ✔ | ✔ | ✔ | ✔ | ⭐⭐⭐⭐⭐ CERTAIN |
| P10 | Micro | Monopoly market — calculate profit, deadweight loss, recommend regulation policy | ✔ | — | ✔ | ✔ | ⭐⭐⭐⭐ HL |
| P11 | Micro | Labour market — calculate minimum wage effect, recommend policy to reduce structural unemployment | — | ✔ | — | ✔ | ⭐⭐⭐ SURPRISE |
🏛️ Universal Part (b) Policy Framework — Use for ANY Scenario
- Identify the economic problem clearly — use data from the stimulus (e.g., “Country X’s inflation rate of 8.2% as shown in Table 1 indicates…”)
- State your recommended policy — be specific (e.g., “I recommend contractionary monetary policy — specifically raising the central bank interest rate by 150 basis points”)
- Explain the transmission mechanism — draw diagram if helpful. How does the policy change behaviour → achieve the objective?
- Link explicitly to the scenario data — reference numbers, country context, time period from the question
- Acknowledge one key limitation — time lag, distributional effect, or conflict with another objective
- Justify over alternatives — briefly explain why this policy is preferred over 1 alternative in this context
About This Resource
This IB Economics HL complete exam guide covers all three examination papers based on the IB Economics HL Subject Guide (First Assessment 2022). It is intended as a structured revision and exam preparation tool for IBDP May 2026 students, with a specific focus on the TZ2 timezone which covers India, UK, UAE, Singapore and Africa.
This resource does not contain past paper questions. All topic frequency analysis is based on the official syllabus and general examination guidance.
Top Predictions for May 2026 TZ2
- 🔴 Paper 1: Externalities + government policy; Free trade vs protectionism; Fiscal policy effectiveness
- 🔴 Paper 2 Sec A: Market failure diagrams; Monopoly (HL); CPI calculation; AD/AS policy
- 🔴 Paper 2 Sec B: Exchange rates; Protectionism tariff diagram; Terms of Trade (HL)
- 🔴 Paper 3: Inflation policy; Current account deficit; Externality Pigouvian tax; TOT calculation (HL)
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