Economics HL _ Question Bank Revision (2015-2023)

MicroEconomics Only

1. a) Explain why a monopolistically competitive firm can make economic (abnormal)

profit in the short run, but not in the long run. [M23_TZ1]
b) Using real-world examples, discuss the view that monopolistic competition is a
more desirable market structure than oligopoly. [M23_TZ1]

2. a) Explain why products may have different income elasticities of demand.

[M23_TZ2]
b) Using real-world examples, discuss the assumption that consumers always seek to
maximize their utility. [M23_TZ2]

3. a) Explain why the existence of positive externalities of consumption would lead to

allocative inefficiency and thus a welfare loss. [N22]
b) Using real-world examples, evaluate the policies a government might adopt to
respond to a market situation in which significant asymmetric information exists.
[N22]

4. a) Explain why merit goods tend to be under-provided in a free market. [N21]

b) Evaluate the use of carbon taxes to reduce threats to sustainability. [N21]

5. a) Explain why producers in an oligopolistic market might choose to engage in

non-price competition. [N21]
b) Evaluate the view that the use of legislation and regulation by the government is
the most effective way to control monopoly power. [N21]

6. a) Explain why governments impose price floors in the market for agricultural
products. [M21]
b) Evaluate the effectiveness of government regulations in achieving a reduction in
the consumption of demerit goods. [M21]

7. a) Explain why a monopolistically competitive firm can make economic (abnormal)

profit in the short run, but not in the long run. [M21]
b) Discuss the consequences of a perfectly competitive market becoming a monopoly
market. [M21]

8. a) Explain how knowledge of price elasticity of demand could be used by a firm that
is considering changing the price of its product. [N20]
b) Discuss how the introduction of a subsidy in a market will affect consumers,
 producers, and the government. [N20]

9. a) Explain how a natural monopoly may arise. [N20]

b) Discuss how governments restrict monopoly power. [N20]

10. a) Explain two reasons why the demand for primary commodities might be price
inelastic. [N19]
b) Discuss the significance of price elasticity of demand (PED) for a government
imposing an indirect tax on a good. [N19]

11. a) Explain how two types of economies of scale can lead to a fall in the long-run
average costs. [N19]
b) Discuss the view that barriers to entry in a monopoly will always lead to abnormal
profits in the long run [N19]

12. a) Explain the relationship between the law of diminishing returns and a firm’s
short-run cost curves. [M19_TZ1]
b) Evaluate the view that monopoly is an undesirable market structure as it fails to
achieve productive and allocative efficiency. [M19_TZ1]

13. a) Explain why price elasticity of demand varies along the length of a straight-line
demand curve. [M19_TZ1]
b) Examine the significance of price elasticity of demand for the decision-making of
firms and governments. [M19_TZ1]

14. a) Using an appropriate externalities diagram, explain why a government might

decide to impose a price floor on a demerit good. [M19_TZ2]
b) Evaluate the view that the most effective way in which the government can
discourage the consumption of demerit goods is through government regulations.
[M19_TZ2]

15. a) Explain why monopoly power may be considered a type of market failure.
[M19_TZ2]
b) Examine the role of barriers to entry in making monopoly a less desirable market
structure than perfect competition. [M19_TZ2]

16. a) Explain how the price mechanism reallocates resources when there is an increase in
demand for a good or service. [N18]
b) To what extent is advertising the most effective way of increasing the consumption
of merit goods? [N18]
17. a) Explain why prices tend to be relatively rigid in oligopolistic markets. [N18]
b) Discuss whether an oligopolistic firm should collude rather than compete. [N18]

18. a) With reference to the concept of excess demand, explain how a decrease in the
supply of a good would lead to a new market equilibrium. [M18_TZ1]
b) A government decides to impose an indirect tax on unhealthy drinks. Discuss the
consequences for the stakeholders in these markets. [M18_TZ1]

19. a) Explain two factors that might give rise to economies of scale for a firm
[M18_TZ1]
b) Discuss the view that legislation is the best way of dealing with the problem of
monopoly power. [M18_TZ1]

20. a) Explain two reasons why a government might want to subsidize a good or service.
[M18_TZ2]
b) Discuss the view that governments should tax the consumption of gasoline
(petroleum). [M18_TZ2]

21. a) Explain why some firms might choose the goal of profit maximization while others
might choose to adopt satisficing behavior. [M18_TZ2]
b) Discuss whether price will always be lower and output will always be higher in
perfect competition compared to monopoly. [M18_TZ2]

22. a) With reference to demand and supply in competitive markets, explain how the
economic question “what to produce” is answered. [N17]
b) Discuss the consequences of the direct provision of public goods by the
government. [N17]

23. a) Explain why firms in oligopolistic markets may prefer to use non-price
competition. [N17]
b) Discuss the reasons why firms compete or collude in oligopolistic markets. [N17]

24. a) Explain how the overuse of common access resources can lead to negative
externalities. [M17_TZ1]
b) Discuss the view that the best way to reduce the threat to sustainability, arising
from the burning of fossil fuels, is for the government to provide subsidies to firms
that produce energy through renewable sources. [M17_TZ1]
25. a) Explain why a loss-making firm in perfect competition would shut down in the
long run. [M17_TZ1]
b) Discuss the view that perfect competition is a more desirable market structure than
Monopoly. [M17_TZ1]

26. a) Using a production possibilities curve (PPC) diagram, explain why choices have to
be made in all economies. [N16]
b) Discuss the view that governments should not intervene in housing markets. [N16]

27. a) Explain why the under-consumption of merit goods causes market failure. [N16]
b) Discuss whether there should always be direct provision of public goods by the
Government. [N16]

28. a) Explain how the incidence of an indirect tax depends on the price elasticity of
demand and the price elasticity of supply. [M16_TZ1]
b) Discuss the consequences of imposing an indirect tax on unhealthy food.
[M16_TZ1]

29. a) Explain why firms may not always pursue the goal of profit maximization.
[M16_TZ1]
b) In a monopoly, economic (abnormal) profit can be earned in both the short run and
the long run. Examine the role of barriers to entry in earning economic profit.
[M16_TZ1]

30. a) Market failure can occur when there is asymmetric information, abuse of monopoly
power, and positive externalities. Explain why any two of these represent market
failure. [M16_TZ2]
b) Evaluate the view that regulations are the most effective government response to
the market failure of negative externalities.[M16_TZ2]

31. a) Explain the conditions necessary for firms in oligopolistic markets to engage in
price discrimination. [M16_TZ2]
b) Discuss whether producers in oligopolistic markets should compete or collude.
M16_TZ2]

32. a) Explain why a government might decide to impose an indirect tax on the
consumption of cigarettes. [N15]
b) Discuss the possible consequences of the imposition of an indirect tax on cigarettes
for the different stakeholders in the market. [N15]
33. a) Explain why a firm in monopolistic competition will make normal profit in the long
run. [N15]
b) Evaluate the view that monopolistic competition is a more efficient market
structure than monopoly. [N15]

34. a) Explain how changes in price work to reallocate resources in a market. [M15_TZ1]
b) Discuss the view that the overuse of common access resources is best addressed by
the government. [M15_TZ1]

35. a) Explain why prices tend to be stable in oligopolistic markets. [M15_TZ1]

b) Oligopolists often possess too much monopoly power. Evaluate whether
governments should intervene in oligopolistic markets. [M15_TZ1]

36. a) Explain two possible government responses to the abuse of monopoly power.
[M15_TZ2]
b) Evaluate the view that monopolies, despite their inefficiencies, may often be
considered desirable. [M15_TZ2]